How does Loanpad earn its money?

February 23, 2024

Peer-to-peer lending platforms earn their money in a few different ways. Many platforms make their income by taking an arrangement fee from the borrower when they originate a new loan. Others prefer to take a percentage of the loan payments, while some earn money through some combination of both.


Loanpad does not charge any arrangement fees to the Borrower. Instead, the platform makes nearly all its revenue by taking a share of the interest payments made on each loan. On some loans Loanpad may charge a small administration fee to the lending partner.


“We earn money right alongside our investors,” explains Neil Maurice, Chief Operating and Finance Officer at Loanpad.


“We think that makes us more sustainable as a business, as it means that we can continue to make money as long as our loan book is active.”


Why doesn’t Loanpad generate more of its revenue from fees?


Arrangement fees are paid once at the start of the loan, and that’s it. Unless the loan is refinanced, the platform will not earn any more money from it after it has been funded. This may encourage some P2P platforms and unregulated lenders to increase their lending activity which could come at the cost of effective due diligence.


“The issue we see with that model is it could encourage a lender to want to lend now,” says Maurice.


“There will be a subconscious view that you need to lend in order to make money. So if your entire revenue is built off arrangement fees, if you don’t lend, you don’t make money; you can’t pay salaries and you can’t keep the lights on.


“If the loan goes sour in six months time and goes into default, the lender will be able to keep their arrangement fee and the people who will lose out are the investors.”


Loanpad looks at things differently. More than 95 per cent of the company’s revenue comes from its net interest margin.


“For example, if we lend out a loan at eight per cent, we will pay our investors six per cent and we will take that two per cent in the middle,” explains Maurice.


“The result of that is that we don’t have an incentive to go into a deal just to make money up front. We only make money throughout the whole term of the loan, along with every other retail investor. So if a loan goes bad after three months and the borrower stops paying, Loanpad also stops receiving its interest.


“Our interests are completely aligned with our investors. We only make money when they make money.”


How much money does Loanpad make?


Loanpad has been profitable monthly since mid-2021. Whilst past performance is no guarantee of future success, Loanpad’s track record demonstrates the prudent management of the business to date, and its ability to generate profits through the interest earned on its loans.


“We have been profitable for a number of years,” says Maurice. “Because of our net interest margin structure, our modelling shows that Loanpad will continue to be profitable even under a wind-down scenario. We think our investors appreciate this as they get additional reassurance from knowing that their money is being invested with a company which has strong financials.”


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