Small P2P platform survivors retrench

This special series analyzes how CreditTech companies in Asia have survived the COVID-19 pandemic and what lies in store.

• More in this series:
• CreditTech after COVID
• Will VCs continue to back lending platforms?
• Singapore’s CreditTech leaders focus on profits

The biggest casualties among fintechs in 2020 were small players with shaky lending skills that could not access new capital. But size is not everything. Some small fintechs have emerged with sounder businesses, while others reinvented themselves.

We profile two very different fintech lenders, one that doubled down on the fundamentals of lending and another that tore up the old business model.

Both continue to face ongoing challenges from the fallout of COVID-19 and the economic damage it is inflicting on the small businesses or consumers who use fintech lenders to access capital. But they enter 2021 in a better position than a year ago.

Back to basics: Crowd-Genie

Crowd-Genie is a small Singapore-based peer-to-peer marketplace that does not use its own balance sheet. It provides working-capital loans to micro and small-sized businesses.

Such general-purpose P2Ps fell out of favor in 2020. Yet Crowd-Genie ended up having a respectable year, according to its co-founder and CEO, Akshay Mehra. He declined to spell out the company’s volumes, as they are small, but says the business generated more than S$10 million in revenues.

“We had zero defaults in 2020, versus a 2.7 percent default rate in 2019,” Mehra said. He says the business also grew, with the second half of 2020 outperforming versus the year before in origination.

The firm survived for three reasons:

• SMEs had even less choice: banks were even more reluctant to lend to them, even under government co-investment schemes (under which the banks might only have modest exposure but they’d still be on the hook in the case of a default)
• Better management: Crowd-Genie cut costs, negotiated restructurings to avoid bankruptcies, and used technology to automate: “Otherwise you’re just a mini-DBS,” Mehra said. “You’re not disruptive enough.” 
• Macro luck: for lenders, while yields on the platform have declined, they are still more attractive than government bonds: “We already offer yields of 10 percent to 15 percent, versus 3 to 5 percent in the bond market. That’s a big spread for taking Singapore risk.”

Crowd-Genie isn’t out of the woods, though. The pandemic hasn’t gone away. Its borrowers are in export industries, like small rig assemblers for oil companies. They are now seeing orders return, which is good news, but the lack of travel and trade frictions continue to plague many SMEs. And if new strains of COVID outrun vaccines and the pandemic drags on, conditions for small companies – and for P2P platforms – could worsen.

And once the government ends its programs to subsidize loans to SMEs, it could lead to a new wave of defaults.

Reinvention: Acudeen

This fintech lender in the Philippines faced extinction as COVID-19 destroyed many small businesses and investors pulled out of P2P platforms. Moreover the company was having to invest in its operations, so it couldn’t cut costs.

Senthil Kumar was brought in as CEO and he initiated a new model: embedding Acudeen within a large family-owned conglomerate. He successfully pitched on such family, with interests in many industries, as well as a group bank.

The idea was to help the bank gain more visibility on how it could lend to suppliers to the group’s big companies. These suppliers have traditionally been on their own when it comes to finances. If they need to borrow to fill invoicing gaps, they have to deal with other banks, or money lenders.

The group’s bank, meanwhile, was not only at risk of suppliers using rival banks, but with the coronavirus it could not tell which of its family’s suppliers were at risk.

Acudeen is now using its P2P platform – which requires a lending license – to make loans within a fast-moving consumer goods vertical. It’s operating solely within the closed loop of the family business. The group’s bank is the primary institutional lender, to companies that it knows.

“We took the play inside their closed system to help their suppliers transact,” said Kumar. “This mitigates the risk to the bank, while the SMEs enjoy competitive rates, and Acudeen can still make a margin.”

If the FMCG vertical is a success, Kumar hopes to extend Acudeen’s platform to other industry verticals within the conglomerate.

Kumar didn’t name the family but Acudeen signed a funding agreement with Rizal Commercial Banking Corporation, owned by Southeast Asian conglomerate Yuchengco Group of Companies (YGC).

The medium-term play is to use the revenues from the family business to relaunch Acudeen into the broader market – without having to raise a Series A round of equity funding. The business should generate an EBITDA (earnings before tax and other expenses) of $15 million this year.

“Going to a family was the best way to reenter the P2P business without raising new capital,” Kumar said.

For a company of that size, there is plenty of scope to scale, both within the conglomerate and the broader Philippines market, which Kumar says is as large as $40 billion for all P2P and invoice financing.

There are nearly 200 fintechs operating in the country, but fewer than a dozen focused on P2P platform lending. To compete, Kumar is not only building up Acudeen’s balance sheet, but also investing in RegTech and artificial intelligence for more efficient operations and credit processes.

“We need to automate in order to reduce risk,” Kumar said. “COVID is still here.”

• More in this series:
• CreditTech after COVID
• Will VCs continue to back lending platforms?
• Singapore’s CreditTech leaders focus on profits