There is always one thing certain in life and that is constant change. The finance world has certainly seen a lot of change over the past 10 years. Firstly, with the global financial crisis which led to the demise of 67 finance companies in New Zealand between 2007 and 2012. The introduction of loan-to-value rules by the Reserve Bank in 2015 and constant updates to laws such as the Responsible Lending Code and Consumer Finance and Credit Act have made the industry I operate in one of constant change. All this change has made it a more complex area for you, the consumer, to borrow money for the things we sometimes may have taken for granted.
In the home mortgage world, the average mortgage application I deal with has gone from 30 pages of information to around 90. The analysis, the checking and research that goes into a simple home finance application, now has pushed out processing times from 24 hours to up to two weeks. Given that we are now in the age of the computer, things should be faster, but alas, it has had the opposite effect. New laws designed to protect consumers and lenders have lengthened the process. It’s now a long-winded paper war for the simplest of transactions. However, is this about to change?
I recently read about the introduction of the peer-to-peer lending marketing place and the rise of web-based lenders who will provide products under the term Robo-advice. Peer-to-peer lending is people lending money to other people without the involvement of traditional intermediaries, such as banks. Peer-to-peer lending matches people wanting to borrow money with people wanting to lend it. Peer-to-peer lending services work in different ways, but are typically web-based. Loan applications are completed online and listed on the peer-to-peer website, and lenders can search for the loans they want to invest in. The peer-to-peer lender typically handles the loan documentation and administration of the loans, including receiving repayments and interest payments from borrowers, transferring monies to lenders and chasing late payments or defaults.
Investors choose which loan they want to invest in. Normally, if you just put your money in the bank, the bank chooses where to invest it for you. There are presently five companies in New Zealand registered as peer-to-peer lenders. It certainly seems to be a growth area and one to watch. A recent law change has allowed another new type of provider to enter the New Zealand market, operating under the ‘Robo-advice’ model. This is a service where a computer uses algorithms to give a person financial advice. These services could offer advice on such things as Kiwi Saver, mortgages or insurance products to structuring a full retirement plan. Although in the early stages, I will watch the progress of this carefully. You can just see the conversation around the dining table in future. Dad, “Why on earth did you just borrow $20,000 for that car?” Son, “Because the computer said yes!”