An Auckland start-up is challenging the traditional finance industry by launching an online auction-based money-lending service.
Nexx, based in business growth centre The Icehouse, is an online person-to-person money match-making platform. Essentially, the company’s technology connects people who need money and people who want to lend money and earn a good rate of return, says Glenn Riddell, CEO of Nexx.
With no bank or finance company in the middle, the interest rate paid by borrowers is the same as the rate that lenders receive, making the service attractive to both sides.
“We do away with the middlemen,” Riddell says.
Borrowers are able to post a loan request on Nexx’s website, in the form of an auction listing, says Ridell. The listing includes a description of the borrower, reasons for why they need the money and what rate they are willing to pay.
Nexx verifies borrowers’ identity, using a two-factor authentication process, and runs a full credit check on their background. The company also goes to established credit information providers to get information on borrowers. Each borrower is assigned a credit grade and the information is then presented in an easy to use form that lenders can look at and make decisions that suit their risk-profile, says Riddell.
Lenders can search the listings and pledge funds with an interest rate they are willing to lend at, says Riddell. Lenders bid on the listings and are encouraged to spread their portfolio across a number of loans — to diversify risk and secure the lenders’ investment returns. So, the total of a loan is made up by many lenders, each contributing small amounts, says Riddell.
Nexx has got all its external information providers lined up and ready to go, he says. The technology platform is completed, and the company is just waiting for legal sign-off, before the beta of the site can be launched, which will very likely happen in mid to late February, says Riddell.
At the moment, Nexx is not making an offer of securities to the public, and no money is being sought, he adds.
The company consists of Riddell, president Ben Milsom, chief financial officer James Wallace, chief technical officer Mark Catley, and two developers. They are all still in, or just out of, university, says Riddell.
The Nexx team believes that online auctioning of services combined with moneylending will be a success in New Zealand. The idea is already working in Europe and the US, says Riddell. Prosper, a US site, has over $100 million in loans from close to 500,000 borrowers and lenders, and Zopa in the UK has over 300,000 users, he says. The success of these sites shows that people can come to trust each other to the extent of lending money, on exactly the same terms as a bank would, he says.
In the event someone defaults, Nexx will take the same measures as any bank would, he adds. As long as the security processes are in place, there is no reason for people to feel scared about engaging in person-to-person lending, he says.
Nexx, which is backed by angel investors, has built most of the technology platform itself, but has outsourced components like security auditing to external providers.
The company also chose to latch the system on to open-source ERP and accounting package Adempiere.
Nexx won the University of Auckland Business School’s Spark Entrepreneurship Challenge in September. The prize was $20,000 in seed funding and a nine-month tenancy in the Icehouse business incubator.