20-50% OFF ALL POTS!
Former British Prime Minister and sometime raconteur Harold Wilson famously noted that ‘‘a week is a long time in politics’’. It’s a sentiment that I’m guessing both Simon Bridges and Jacinda Ardern have some sympathy for as they’ve had to cope with managing a plethora of colourful issues lately, from renegade MPs to kickboxing drug dealers.
It’s also a sentiment that also applies to startup companies, albeit with a slightly longer timeframe, normally. More like a year, according to a Harvard Business School study.
Coincidentally it was a year ago that online short-term lender Moola placed second in the Deloitte Fast 50 Awards. This made it the second-fastest growing company in New Zealand and the fastestgrowing technology company to boot with 1013 per cent growth in three years.
At the time, responses in the public forum were largely supportive. A few pointed out that the company’s business model – where it offers cash loans of up to $5000 within an hour – made it an online Shylock.
However most observers were glowing about the ‘‘scalable business’’ that used technology to ‘‘advance unsecured loans’’ with ‘‘responsible lending policies’’ at its core.
A year later that responsibility is being called into question now that the Commerce Commission has confirmed it has launched a formal investigation into Moola.
ComCom’s investigation is focused on whether Moola has been meeting responsible lending criteria, and whether the fees charged are reasonable. Reasonable here is a key concept. On the Moola website they magnanimously point out that ‘‘when you see our annual interest rate you might have a slight freak out’’. That’s putting it mildly.
Moola’s short-term loans of up to 44 days are charged at an interest rate of 620.5 per cent a year. Meanwhile, longerterm loans for between two and four months are charged 328 per cent interest.
That doesn’t sound super-reasonable to me.
In fact, for the four-month loan it’s about 15 times what my very profitable credit card company charge me for a cash advance and about 25 times what they charge me as a purchase interest rate.
A couple of weeks ago I wrote a column about Commerce Minister Kris Faafoi’s welcome review of the Credit, Contracts and Consumer Finance Act.
The review cleans up much of the third-tier finance industry. In particular it sorts out the bottom of that tier where providers are often seen not just the lender of last resort but the lender of only resort.
The review recommends that interest and fees on personal loans be limited to 100 per cent of the amount borrowed. For the likes of Moola, that’s going to knock the stuffing out of their business model.
At the time I opined that one area that the MBIE review had missed was the new breed of buy-now pay-later online services that have taken off in New Zealand and Australia. Services like Afterpay, Openpay and Zip Pay. Services that I still reckon deserve to be covered by the updated act.
Since that time I’ve had a number of people reach out to me to say these new services have eliminated the need for them to resort to third-tier lenders. Lenders like Moola.
This new breed of finance provider effectively provides an interest-free layby service, so as long as you pay back the money on the staggered (normally four) dates you pay zero interest.
Here it’s the merchant that pays for the service.
For retailers and service providers it’s a useful way of enabling greater throughput and higher revenue for their businesses. And given the purchaser is already on their website or in their store, they can apply their marketing spend to meeting the layby costs.
For the consumer, they get completely free credit, so long as they meet the four repayment dates. And contrary to my previous understanding, these firms do undertake credit check before you can get signed up.
In the case of Afterpay, that means I can buy the kids Christmas presents at Hallensteins or healthcare items at Kmart even though my payday might be out of kilter with my need for those products. But I do need to ensure I can meet the repayment dates or I will incur late fees.
Meanwhile, unlike traditional money lenders who can require people to take on additional debt to pay back their loan, Afterpay immediately suspends a customer’s account if a payment is not made on time.
In other words, you can’t get further in debt and there is a ceiling to what you might end up paying. If you can’t swim safely between the flags, you aren’t allowed to continue to swim.
Another great quote from Harold Wilson was his stinging attack on the Liberal Party. He said that it offered a mixture of sound and original ideas, but sadly noted that none of the original ideas were sound. The same might turn out to be true of the business model of the 200-odd third-tier finance companies in New Zealand.
That means there might a few less this time next year. After all, a year is a long time in business.
Mike ‘‘MOD’’ O’Donnell is a professional director and adviser. His Twitter handle is @modsta and this column is his personal opinion.