INVESTING FOR THE 21ST CENTURY

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THE CANADIAN PEER-TO-PEER LENDING LANDSCAPE


A Decade Late, Grouplend and Borrowell Try to Emulate the U.S. Experience


Peer-to-peer lending, or P2P lending, did not originate in Canada. See our previous post for A Brief History of Peer-to-Peer Lending. It was roughly a decade after the birth of the industry globally that Grouplend Inc. and Borrowell Inc. arrived in the Canadian market in late 2014 with the aim of delivering U.S. style P2P lending to Canadians. However, these two companies found that the Canadian market was not as friendly as the U.S. market had been.


Much like the early days of the U.S. market, the Canadian legal landscape was not set up to accept this alien structure. Further, with a market much smaller than the American market, it was likely harder to spread the extra cost of registering loans with the securities commission, as Prosper and Lending Club (the pioneers of the American industry) had done prior to the U.S. legal landscape catching up to the changing times.


Regulations and Red Tape Ruin the Early Days of the Canadian Experience


In light of a smaller market with more restrictive laws, Grouplend and Borrowell limited their platforms to only those lenders who qualified as “accredited investors”, which allowed them to avoid some burdensome rules that required issuing a prospectus for each of the loans they were issuing to borrowers.


In general terms, in Canada, an accredited investor is an investor who (other than being registered with a securities commission), in a particular year:

  1. owns, alone or with a spouse, “financial assets” (e.g. cash, securities, insurance, but not a real estate), net of liabilities, worth at least $1,000,000;

  2. owns, alone or with a spouse, net assets worth at least $5,000,000; or

  3. had net income alone (or with a spouse) before taxes exceeding $200,000 ($300,000) in each of the two preceding years and who, in either case, has a reasonable expectation of exceeding that net income level in the relevant year.

So as can be imagined, this was quite a restriction on Grouplend and Borrowell’s potential pool of investors. They could not achieve the types of economies of scale that their American counterparts could.


Lending Loop Enters the Market in 2015, Declaring it had Cracked the Regulatory Code


Lending Loop somehow managed to crack the regulator codes in place to offer its product

However, in late 2015, a new party joined the fray, Lending Loop, and they were not afraid to offer a product almost identical to Prosper and Lending Club down south. In an interesting article, it was revealed that Lending Loop was relying on a legal opinion to take its position but that, in essence, Grouplend and Borrowell had no idea how it was doing what it was doing.


While Lending Loop apparently cracked the regulatory code, Grouplend and Borrowell would never actually figure it out, apparently. In fact, as of 2018, both of them had left the market entirely.


Grouplend and Borrowell Retool and Rebrand


As early as November 2015, Grouplend began to expand beyond the P2P market, rebranding as Grow, and now offering, according to their website, among other things “end-to-end digital banking solutions spanning retail and business banking, including account opening, lending, financial education and engagement, credit cards, mortgages, insurance”. What that all means, we don’t necessarily know, but it certainly looks like they’ve moved far beyond P2P Lending, with no mention of it on their website anymore.


It is unclear when exactly Borrowell left the market, but as of June 2016 they had begun to diversify into producing credit scores and their website now advertise themselves as a company that provides free credit scores, advice on how to improve credit scores, and recommending third party products that may be of interest to clients, earning revenue via referral fees to those other products.


The Landscape as we Prepare to Enter 2019


With Grouplend and Borrowell exiting the playing field, that leaves Lending Loop as the last one standing. The first Canadian tech company to figure out American style P2P Lending is also the sole remaining one in the market. We have been dabbling with Lending Loop for a few months now and if you are interested in how we are doing, feel free to check out our October and November updates on them.


However, before we dive into a full review of Lending Loop, we want to first cover another topic or two. The next two week will be used to talk about crowdfunding, first the international story and then the Canadian story, then we hope to discuss cryptocurrency investing.

 
 

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