Analysis

“Peerform” – Lessons on how to grow a p2p originator

Peerform (https://www.peerform.com/), one of the oldest companies in peer to peer lending or marketplace lending business for consumer unsecured personal loans, was established in mid-2010 in New York City. It invested much time initially going through the regulatory framework; creation of proprietary lending technology and to have prime space on Google besides raising the requisite funding. The founders focused a lot on technology without any outsourcing. There were only two other players, Lending Club and Prosper in the arena when they entered the ring. The startup in its new avatar has chosen to specialize in financing for the near-prime having scores starting at 600 FICO.  The company raised an initial $1.5 Million Angel in 2011 and another Seed Round of $1.5 Million in April 2014 followed by a $1 Million Convertible Note in August 2015. This signals that the company is back on track and is about to close a further equity round. The company has lent more than $20 million up to date.

History

Peerform initially dealt with borrowers having 660+ FICO scoring. After having handled hundreds of cases successfully, they were approached by institutional investors willing to finance whole loans to near-prime borrowers having FICO scoring as low as 600+. In 2013, they accepted the challenge and switched over to whole loans of 600+ scorers.

Business Model

Currently, the business model is a marketplace of personal loans for 600+ borrowers through institutional investors and accredited individual investors. Peerform specializes in funding arrangements for the borrowers with 600+ scores via their proprietary Loan Analyzing System. They do aggressive marketing for this category of borrowers and the average borrower interest is about 20%, on the upper side of its APR range of 7.12% to 29.9% APR. The company serves borrowers who seek refinancing of their existing debts and also those who aspire to renovate their house property or to buy some consumer goods.

Team

Peerform has a team of 17 people with about 6-7 members in underwriting and servicing department, some of which were earlier risk officers in reputable banks. The team also has a strong technology and risk staff. The CEO, Mikael Rapaport holds a Masters of Financial Engineering from UC Berkeley, Haas and was previously working at Bear Stearns and Cantor Fitzgerald in Structured Credit Derivatives.

Volume and Returns

Peerform origination growth was 1200% in 2015. In January 2015 Peerform was pre-approvning 320 loans versus 4244 loans in December 2015 for a total revenue of $900k in 2015. Peerform’s revenue comes from its origination fees in the 1% to 5% range in a very similar way to its competitors.

To date, Peerform has raised equity capital to the tune of $4 million and have originated a total of $20 million. Institutional lenders buy whole loans and seek a net yield in the range of 7 to 12%. The average borrower’s interest rate is approximately 20%.  The size of loans varies between $1,000 to $25,000 with an average loan of about $9,000. Because the company is #3-4 on Google Search using “peer to peer lending lending” keyword it has a cost of customer acquisition customers (CAC) of only 150$ versus the 350-450$ range for Lending Club and Prosper. The company gets a whopping 40% of its web traffic organically. That is a unique edge that is hard to acquire or to buy. However, this advantage does not scale beyond the present 80,000 or so monthly web visitors.

Cross River Bank

Peerform, through their relationship with Gilles Gade, the CEO of Cross River Bank, persuaded the bank to enter the P2P lending space back in 2010. As such Peerform was the first marketplace lending platform to work with Cross River Bank. Cross River Bank is now known for being one of the main players in working with p2p lending marketing companies to help them passport their services across all 50 US states seamlessly but for a fair cost. Currently, Peerform operates only within 35 US states because of risk and regulatory factors.

Future Prospects

Peerform has plans to raise additional equity capital of $10 million and are seeking $100 million in lending capital within the next 6 to 9 months. The funds thus raised will be deployed in the growth and development of their team, origination, marketing, and technology. Currently, the company is successfully disbursing a total amount of $1.5 to $2 million to 600 small-sized borrowers per month. At present their customer flow would be sufficient to lend between $ 7 and $8 million per month but their lack of lending capital forces them to originate only $2 million per month.

Peerform wants to leverage its top-notch technology to become a “full service fintech laboratory” and offer additional lending products to their investors.

Author: George Popescu

About the author

George Popescu

Serial entrepreneur.

George sold and exited his most successful company, Boston Technologies (BT) group, in 2014. BT was a technology, market maker, high-frequency trading and inter-broker broker-dealer in the FX Spot, precious metals and CFDs space company. George was the Founder and CEO and he boot-strapped from $0 to a $20+ million in revenue without any equity investment. BT has been #1 fastest growing company in Boston in 2011 according to the Boston Business Journal and the only company being in top 10 fastest in 2012-13 as it was #5 in 2012. BT has been on the Inc. 500/5000 list of fastest growing companies in the US for 4 years in a row ( #143, #373, #897 and #1270). After the company sale in July 2014 until February 2015 George was Head-of-Strategy for Currency Mountain ( www.currencymountain.com ), a USD 100 million+ holding company focused on retail and medium institutional currencies, precious metals, stocks, fixed income and commodities businesses.

• Over the last 10 years, George founded 10 companies in online lending, craft beer brewery, exotic sports car rental space, hedge funds, peer-reviewed scientific journal ( Journal of Cellular and Molecular medicine…) and more. George advised 30+ early stage start-ups in different fields. George was also a mentor at MIT’s Venture Mentoring Services and Techstar Fintech in NY.

• Previously George obtained 3 Master's Degrees: a Master's of Science from MIT working on 3D printing, a Master’s in Electrical Engineering and Computer Science from Supelec, France and a Master's in Nanosciences from Paris XI University. Previously he worked as a visiting scientist at MIT in Bio-engineering for 2 years. George had 3 undergrad majors: Maths, Physics and Chemistry. His scientific career led to about 10 publications and patents.

• On the business side, Boston Business Journal has named me in the top 40 under 40 in 2012 in recognition of his business achievements.

• George is originally from Romania and grew up in Paris, France.

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