Peer-to-peer lender Harmoney has announced potentially substantial increases to its fee structure for lenders, effective from June 13.
The new, much higher, fees will apply to just new amounts lent out and not to existing investments.
The changes follow the restructuring of fees to borrowers in December 2015, at which time the company significantly reduced the Platform Fee for all borrowers. See here for previous articles about Harmoney.
In a paragraph that was included in a newsletter to Harmoney investors today, but was not included in the press release the company sent out, Harmoney explicitly stated that at the time it reduced the platform fee for borrowers in December, it raised the interest rates charged them to compensate.
"At that time we significantly reduced the Borrower Platform Fee, adjusting interest rates so, on average, borrowers paid around the same amount overall," Harmoney told its investors.
And it is these higher interest rates that Harmoney is now charging borrowers that the company, in part, uses as an offsetting point for the much higher fees it's now going to charge lenders.
For new loans made from June 13, 2016 Harmoney has removed its Service Fee (1.25% of the principal and interest payments collected on each repayment, including any repayment as a result of a rewritten loan). Instead a Lender Fee will be charged only on interest, and is charged on a sliding scale that recognises the amount lenders have invested through the platform – the greater the lending, the lower the fees.
"The interest-only application of the Lender Fee means Harmoney has to keep delivering returns to receive this fee," the company says.
That December change to borrowers' fees came against a backdrop of the Commerce Commission looking into whether fees charged by peer-to-peer (P2P) lenders are covered by the fees provisions of the Credit Contracts & Consumer Finance Act (CCCFA).
Previously the platform fee for borrowers ranged from between 2% and 6% of the loan amount, based on the loan's risk grade. It was changed, without fanfare in December, to a one-off fee of $375.
However, as the company has now disclosed, it raised the interest rates charged to borrowers to compensate.
Now it has come up with the new fees structure for lenders.
According to the example Harmoney itself gives of the new lending fee structure, somebody investing $15,000 for 36 months would potentially see their service fee paid increased by over 174% (its a nearly $1000 increase according to the example), assuming returns were as Harmoney outlines.
Harmoney says the end result for the investor will be largely unchanged - because the interest rate charged to the borrower is going to be higher. However, the example given does show a slightly lower (21bps) rate of return than before the fee change.
Harmoney founder and joint CEO Neil Roberts said that the changes were being made "in order to ensure the sustainability and longevity of the platform and maintain the value we deliver to Lenders and Borrowers".
No recent detail of the company's financial performance is publicly available, but in the first 11 months of operation to March 2015 it lost $6.26 million.
Roberts said the Harmoney platform was delivering returns to retail lenders that exceeded those originally targeted. "Retail lenders are enjoying an average Realised Annual Return (RAR) of 13.05%."
Harmoney’s RAR has been published since December 2015 at a platform level, within the market statistics page, and as an individual return, within each lender’s dashboard. "Harmoney has the tenure and scale to provide an actual realised return with almost two years of tenure and $250 million in lending."
Roberts said the new fee structure" will allow Harmoney to continue to invest in growth, which will drive more loan value for all lenders". In "just 20 months" of operation, he said, Harmoney has:
- raised $30 million in working capital and invested substantially in the platform infrastructure and improvements;
- assessed more than $2 billion in loan applications;
- facilitated $250 million in lending;
- paid $20 million in interest to Lenders;
- processed more than 7,500,000 transactions.
"Thousands of New Zealanders have contributed to its success, and the team will continue to work hard to justify the faith and support of those who use the platform," Roberts said.