Canadian peer-to-peer lending company CommunityLend recently launched in two Canadian provinces. We recently had a chance to interview with Colin Henderson, one of CommunityLend co-founders. Henderson also serves as the company’s CTO.
Here’s the interview:
ABN: CommunityLend launched this month in Ontario and Quebec. How are the company’s efforts to do business in other provinces coming?
CL Colin: CommunityLend is committed to providing the service to all Canadians. The securities jurisdictions in Canada are unique to each province and each requires its own application process with all the commensurate application process, discussion and of course legal costs. Nonetheless we feel the hardest parts have been achieved with our initial work in Ontario, and we hope to make good and rapid progress towards our objective within 2010.
ABN: Tell me about some of the unique regulatory challenges that CommunityLend has faced. Has Canada’s regulatory environment made it difficult for CommunityLend to launch?
CL Colin: The real challenge for peer-to-peer lending broadly, is that it was not contemplated by the founding fathers in US nor Canada when they drew up the regulations that apply to banking and securities. Internet and automation were not around in those days. The framework for regulation was based on face to face human oriented activity and paper based processes. Today we have a dramatic shift in capability allowing asymmetric activities across automated platforms. People can not just access and interact online, they can have the flexibility to operate on their own schedule, yet still be at the convenience of others. Online platforms can manage the time gaps and keep everyone connected. The unique challenge for us and for the regulators is to apply the regulatory principles including protection of Canadians, without too much compromise in our system. Long answer to explain that Canada’s regulatory system has no particular challenge that others do not have. The real challenge is brought about by change by internet and the new business models that are now possible.
ABN: There was recently a well-publicized article on Slate called “You are unlikely to prosper” that criticized the peer-to-peer lending industry for being too risky for investors. What are your thoughts about the high default rates that some US peer-to-peer lending companies have seen? What is CommunityLend doing to ensure that only loans to credit-worthy borrowers are made?
CL Colin: My response which I wrote earlier was this. The peer-to-peer lending model to date has two definitive characteristics that with the passage of time are essential to understand that peer-to-peer lending is not what social lending looked like in 2005. So 2005 events and circumstances should be viewed as learnings to be applied to 2010 circumstances.
At CommunityLend our job is to provide a robust platform that takes that learning and applies it in a way which offers smooth, simple and comfortable environment for borrowers and lenders.
ABN: Tell me about CommunityLend’s “Communities” feature. Have borrowers that are part of CommunityLend communities gotten better interest rates than those that are not part of communities? What other benefits do members get from joining communities?
CL Colin: We think of Communities as our beta feature. It will take time to prove out the beta with sufficient data and experience. Our premise is that Communities will provide borrowers the capability to demonstrate that their collective loan repayment success is better than the average of all borrowers with similar credit scores. Time will tell, and we are excited to build this beta out.
ABN: CommunityLend has been active for just under a month. Has CommunityLend’s initial launch demonstrated a demand for peer-to-peer loans in Canada? Any numbers you would like to share in terms of dollar amounts, lenders, borrowers would be very welcome.
CL Colin: Our first month has been deliberately kept under the radar. We used it to speak with early users and flush out parts of the site that are not optimal. We have used this feedback to redesign our site, and the first part of the build goes live later this week. We are under no illusions that building borrower activity in particular will take time and we have multiple activities underway to make that happen, including partnerships and awareness activities.
ABN: Tell me about CommunityLend’s future. What are CommunityLend’s major goals now that the service has launched?
CL Colin: Our primary goal is to change the rules of lending. We want to provide a better experience for borrowers, which offers them more empowerment and control that combines in a better experience. We want to offer sources of capital including personal investors and institutional investors the access to borrowers on a scale and return that offers them another alternative.
ABN: Is there anything else that you would like to share about CommunityLend?
CL Colin: We have high hopes and we are a small startup. Our early goals are modest but our vision is larger. Our team is small and that will change over time too. We just appreciate the attention from folks such as yourselves and this all helps us to get our name out there and recognised by folks. The world has come out of the recent economic crisis more pragmatic, less trusting of institutions. Through transparency and openness, built on a robust secure platform, our intention is to make a difference and rebuild some of that trust for people.