12. March 2013–
Auxmoney, founded in 2007 by Raffael Johnen, Philipp Kriependorf and Philip Kamp and based in Dusseldorf, is an online marketplace for peer-to-peer lending.
If you're looking to borrow, plug in the amount, rate of interest you're willing to pay, why you need the money and a projected timeframe to pay it back. You can also choose to apply for one or more free credit rating certificates, to make yourself more attractive.
Auxmoney will then calculate repayment instalments and list the loan for investors to bid on. The project will have a maximum of 20 days on the marketplace. If it fails, you can list again – maybe tweaking the amount or the interest rate.
Investors, meanwhile, can invest as little as €50 in any given project. That opens the floor to more than just suits – anyone with cash to spare could theoretically become an Auxmoney lender. Diverse portfolios are good ones, though, so the more small investments you can make, the safer you'll probably be.
Once the funding target is met, Auxmoney (through its partner bank) will instantly wire the money to the borrower. The platform takes a 2.95 per cent cut on the money received by the borrower and one per cent on the funds put in by each investor.
Why this might beat banks
Auxmoney is showing some signs of success – since 2007, it's facilitated 11,000 loans worth €45 million, over 50 per cent of which were issued in the last 12 months.
It's also rare to see New York-based Union Square Ventures investing in Germany – it's a top-tier VC known for backing Twitter, Tumblr, Foursquare and Kickstarter. SoundCloud is the firm's only other known investment in Germany.
So what's the appeal? Borrowers with good credit might be able to beat the rates charged by normal banks. The lowest amount that can be listed on Auxmoney is €1000; interest rates range from 5.5 per cent to close to 14 per cent.
"Our average interest rate is below 11 per cent", Auxmoney co-founder Raffael Johnen (pictured right) told us. "Obviously the good quality borrowers, a reasonably big part of our platform, they pay less – eight per cent, nine per cent."
Others come to the platform because it can be quicker and easier than making an appointment to apply for a bank loan.
For investors, after taking defaults into account and Auxmoney's cut, returns – for a "particular segment of our market" – average out to about seven per cent, Johnen said.
“Number one, achievable returns on Auxmoney are attractive," he said. "Number two, returns are predictable. Number three, returns are uncorrelated to stock market fluctuation and are unaffected by changes in the interest rate environment.”
Few investments are without risk, though. If a loan defaults, Auxmoney's policy is to pass it to a third-party collections agency who goes after the borrower on behalf of investors. After collection efforts, Auxmoney's published default rate is 3.5 per cent.
International plans? Not yet
Due to regulatory hurdles, there are no short-term plans to take Auxmoney outside Germany – though Johnen didn't rule it out. Instead, the new funds will be used to grow the current team of 30 and further develop the product.
And how did Johnen get Union Square Ventures on board? He "picked up the phone and called them" – knowing that with similar companies Lending Club (US) and Funding Circle (UK) already in the portfolio, they'd at least understand the idea. "Everything happened from there."
counting cash: flickr user Ed Yourdon
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