P2P Lending In Canada with Michael Garrity CEO of CommunityLend

I was sitting at home relaxing after a hard week (damn G20) and I decided I’d sit down to watch some World Cup soccer. Relax a little bit, I’ve forgotten what that feels like. Immediately once I sat down, I received an email lead from our editor about a new Canadian Tool for consumers. A P2P (peer-to-peer) lending tool that is online for Canadians. I was intrigued to say the least. Intrigued because I haven’t heard of a similar product in Canada.

Enter Communitylend, the peer-to-peer network of lenders. It is a new financial product to hit the Canadian marketplace. The U.S. and the U.K. have already had similar peer-to-peer groups established. Michael Garrity, the President  and CEO stated that peer-to- peer lending “is an international financial services innovation which aims to create an alternative to traditional banking and securitization models by allowing personal borrowers to get loans funded directly by private investors (both individual and institutional) through facilitated online loan auctions.”

The core idea behind P2P is to provide lenders with better rates than they could traditionally get at banks.  Mr. Garrity stated “In essence it’s banking without the bank part.” It made me think could this be the way of the future? Could this be the end of the traditional banking system that we know of? Will a company like CommunityLend become major competitor to the Big banks? In a nutshell, no. CommunityLend seems to be an evolving idea that the banking industry isn’t looking at. CommiunityLend has tapped into a nice little market niche. I’d love to see a new idea compete against the ‘Old Guard’. The idea is fantastic, the site looks great and the people seem really nice/down to earth.

We were able to talk to Michael Garrity, who is the CEO and President of Community Lend. Our questions and his answers are below:

Q: Why do feel Canadians need a P2P lending service?

Canadians need more competition in our banking industry. The Canadian banking industry is a virtual oligopoly with 5 Banks controlling 90% of all banking assets. The result is that while Canadians have significantly lower delinquency rates than the US, we pay the same and sometimes higher rates for our credit products such as unsecured and auto loans. CommunityLend’s unique P2P lending service will increase the number of available interested lenders for a borrower from 5 to 50 to 5,000 over time, providing them real rate competition for their loans. And because the CommunityLend is a completely online service operating 7/24, those borrowers can apply for loans when they want to instead of having to show up at a particular bank at a particular hour.

Q: Why do you think the Canadian regulatory took so long in approving your new banking model?

Canadian regulators are justifiably cautious with new models and products for banking and investing. We spent a long time consulting with regulators on our model and what we intended to do in Canada and addressing their concerns with implementing P2P lending in Canada in a way which remained compliant with existing laws and regulations. The result was that we needed to seek and obtain certain licenses and exemptions across multiple provinces in order to operate. That took a fair amount of time and happened during one of the most uncertain times we have seen in our financial services history.

Q: Has the recession had a positive or negative impact on your service?

This particular economic phase that we are in now has culminated in a strange combination of very low rates for investors in fixed yield products such as GIC’s but very high rates for borrowers in products such as unsecured loans and credit card interest. The result for the banks has been some of the best profit years. The result for CommunityLend is a market opportunity to bring investors and borrowers together to do better without the banks.

Q: How can I become a private lender? Please briefly explain how it would benefit me, the lender.

Becoming a private lender at CommunityLend takes about 10 minutes of your time and is free to register. In order to qualify, you will need to meet the criteria for being an “accredited investor” in your province of residence and you need to reside in one of the provinces in which we are licensed to operate (Ontario and Quebec for now, with British Columbia coming soon). To see the qualifications for being an accredited investors, check here. The benefit to you would be the unprecedented opportunity to participate directly in the proceeds of consumer lending. The UK and US P2P lending services which have been our main influences are providing their lenders with net annualized returns well above the average for equivalent fixed income products.

My view is that the ‘Old Guard’ should watch out for CommuntiyLend. They have a nice niche idea that could quickly make an impact on the lending side of their businesses. If other P2P groups enter the marketplace, I see it being difficult for CommunityLend to compete effectively.

What do you think? Do you think the Canadian Marketplace is to saturated with lending opportunities? Do you feel that CommunityLend provides value to consumers? What are your views on the new idea of P2P?