Online lender Harmoney has laid out ambitious plans to lend a billion dollars a year to Australian consumers in a major push across the Tasman.
The Kiwi finance company revealed a $10.5 million statutory net loss in its first half-year result as a listed company on Wednesday.
The loss was a 20 per cent improvement from the $13m loss it made in the six months to December 2019.
The company's pro forma results - its preferred method of measurement which removes the impact of non-recurring items and aligns the accounting treatment for all its loans, shows it made a cash profit after tax of $1.24m - a $4m improvement on the prior comparable period.
Harmoney listed at A$3.50 or NZ$3.57 but its shares have fallen markedly since then touching a low of $2.28 on Monday.
Harmoney chief financial officer Simon Ward said its income was flat over the six months to December 31 at $41.55m despite the period being impacted by Covid-19.
But loan originations were down 28 per cent to $193.7m as it took a more conservative approach to lending.
Expected credit loss provisions increased from 4.4 per cent to 5.7 per cent due to a higher Covid-related overlay.
But its marketing expenses dropped as it spent more time focusing on lending to existing customers.
Ward said its move away from using a peer-to-peer lending model to warehouse funding had also lowered its interest expenses by 12 per cent to $2.2m.
Harmoney chief executive David Stevens outlined the business' growth plans.
He said the size of the personal lending market in Australia was A$150 billion where as New Zealand was $15b.
Stevens said Harmoney was tapping into that sweet spot of convenience and efficient services at a time when online players were gaining on the banks whose share of the personal lending market had fallen from 90 per cent in 2015 to 50 per cent in 2018.
He also pointed to the rise in online purchasing which had gone up 113 per cent since 2015 at the expense of branch sales.
"For Harmoney this translates to total online inquiries surpassing $7.4b, of which $3b was in Australia."
Stevens said it planned on taking customer scale to the next level with its new lending model with a target of $1b in loan originations per annum in Australia.
Since launch in 2014 the company has done $1.9b in loan originations largely in New Zealand.
That billion-dollar target was based on its New Zealand conversion rate converting into the Australian market where it has operated for a few years.
Stevens said prior to releasing a new technology platform called Libra 1.7 into Australia on February 10 it had a 25 per cent conversion rate but two weeks under the new tool had seen its loan conversion rate rise to 100 per cent.
Longer term it expects this to settle at around 80 per cent.
He said a significant increase in new business then had a multiplier effect when combined with its three Rs programme where the average customer took two Harmoney loans.
"That is how we get to the billion dollars."
"We aren't focused on chasing new products or new segments we are focused on maximising our core products."
Stevens said it was planning an upgrade to Libra before the end of its financial year in June 30.
He said the roll-out of Libra was the first step in replicating its New Zealand performance in Australia.
The Libra system meant it was using an Australian-based credit scorecard. Up until recently it had been using New Zealand data to help make its lending decisions.
"Now we have been here three years, we have been able to build up 53,000 accounts to build up the data. We have got new characteristics of data that wasn't previously available."
That meant it was now approving loans to some applicants it had previously declined despite them having good credit profiles.
He said it was exciting for the business at it came at no extra cost to the business.
"The credit profiles remain the same in terms of customers we are bringing in."
The company had still to largely deploy the money it raised through its IPO and Stevens said it planned to bring its marketing spend back to historical levels after toning it down through last year.
Stevens said it cut off its highest risk grade of lending in New Zealand last year with Covid and had not gone back to it.
"I don't think anyone is under any illusions, particularly in Australia there is obviously a lot of cash in the economy from government stimulus and people drawing down on super."
That was not so much the case in New Zealand where stimulus largely ran off in September October.
"I think we are still going to take a fairly cautious view to that but you can see that we can achieve pretty strong origination volume without going down to that riskier grade."
He said its technology was highly scalable and could handle its targeted increase in originations.
"Obviously a billion dollars is a big number. But it's something hopefully you can see from addressable market size, increasing conversions which we believe is achievable and then overlaying three Rs. The billion dollars becomes a target but something within striking distance."