Yeah I am quite surprised at the losses to date, which are continuing to grow. There are two expenses beyond the bad debt losses and of course the financing - these being tech and marketing.
They do note they expense all tech spend, rather than the standard practice of the likes of the banks that capitalise where possible and amortise. So they are forward loading this cost. So that's a conservative position inflating the losses.
But bad debts are a risk, especially given the state of the economy and their need to continue to grow to achieve economies of scale. They can't scale back their risk profile to reflect the market conditions given the need to grow to profit.
There's also significant marketing costs, which again need to scale up to cotninue the growth. The wind-down of this marketing killed lending through the middle of the year. Its a brand with no real market share and far from a household name.
So I expect the need to grow will continue to push up expense ratios, and those profits will become a pipe dream.
Personally I am quite happy to continue to use their platform as a way to earn 5.5% on their P2P lending for now. Its a useful diversification for my SMSF, its profitable right now and has cover by the bad debt escrow. Risk is up so I'm not pumping more funds in, but happy to hold and monitor the bad debts rate for now.
