Germany’s Smava raises $65M to expand its consumer loan portal

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While Google dominates the world when it comes to search, portals for those looking for products and services in specific niches continue to have a place in our online world. In one of the latest developments, Smava, a German startup that has built a marketplace/portal for people to search for and take out loans, has raised $65 million to grow its business across Europe.

The funding comes from Vitruvian, a UK-based private equity firm that had also funded Skyscanner (a vertical search giant in the travel industry, now owned by Ctrip) and last June announced the close of a new, €2.4 billion fund, with participation also from previous backer Runa Capital and others. To date, Smava has raised around $135 million, and while the startup is not disclosing a valuation, according to sources, it is around $300 million with this round. Smava has been profitable for the last year.

Smava started out originally in 2007 as a peer-to-peer loan platform, where those wanting to borrow money could tap those willing to loan it. Smava would provide the big data analytics to assess both sides’ credit-worthiness, bypassing banks and their high fees, long wait times and more conservative credit scoring.

Ironically, the startup later expanded to include banks in the mix of loans it offered, as it started to realise it would be a much larger and ultimately cheaper source of funding than the P2P business could ever be, since the majority of its customers could be termed “prime” borrowers — with high credit scores — so would be eligible for cheaper bank loans.

“Banks and traditional lenders were much cheaper than private lenders could ever be due to the low refinancing costs,” said Alexander Artopé, the company’s founder and CEO. “This was the starting point of our growth.” P2P is still part of the mix, but represents less than five percent of all loans, he added.

It turned out to be a huge boost to the company’s operation. In 2012, Smava transacted €40 million in loans through its platform. This year the figure will be €1.2 billion, with €3 billion over the lifetime of the startup from about 300,000 customers.

(And while Smava does not reveal revenues, the company has a take of around four percent from its loans, which would mean revenues of around €48 million from these products.)

While Smava’s original product drew on big data analytics to analyse your financial history and online profile to create a credit score for you, today the company extends this to the other side of the marketplace as well by matching up your credit score with a sorted list of loans that best fit your profile. 

There are a number of portals aggregating loan and other financial services offerings in the market today, based around the idea of the aggregator making affiliate revenues whenever a user clicks on a product and makes a purchase. The difference with Smava, Artopé said, is that it’s applying more intelligence to the mix rather than simply listing loans based on basic criteria.

Smava typically provides the average customer a selection of about 70 loan offers, drawing from a wider selection of offerings from 25 banks and other private lenders, with multiple different interest rates and other costs added in.

Smava claims that its algorithms translate to more efficiency in the process. On average, its customers’ wait time for getting a loan can be cut from 10 days to 10 minutes, and savings compared to going directly to a bank works out to around €2,000. “We provide a transparent market overview,” he said.

Although it might seem to be against a banks’ interests to allow their loans to be listed alongside those of competitors, the advantage is that Smava helps funnel more people towards their loan products from a new channel, bringing in customers that the banks might have otherwise missed. Indeed, Smava claims that its approval rates increase to around 80-85 percent compared to 50 percent when banks evaluate directly.

Now the idea will be to take this loan model to more use cases.

One area where Smava will work more is in partnering with e-commerce sites to enable loans for purchasing larger items. One such partnership, starting this month, will be with eBay in Germany, where Smava will power financing for its car portal (nabbing the opportunity from one of its competitors, the massive deals aggregator Check24).

It is the combination of the smart algorithms, working with banks and its connection with customers with strong credit histories that attracted the funding.

“We are delighted and excited to partner with Smava and to back a company that is instrumental in transforming the financial services industry in Germany”, said Jussi Wuoristo, a partner at Vitruvian Partners, in a statement. “Smava has proven that its marketplace model combined with continuous technological innovation materially enhances the alternatives available and experience for consumers. Smava brings strong value to the product providers by offering an attractive direct online channel to high quality prime customers. The online penetration for personal loans continues to grow fast in Germany and smava is uniquely positioned to accelerate and benefit from this trend.”

Currently, Smava has limited itself only to providing loans in Germany, and it will continue to expand that as well as evaluate other countries.

“The German consumer loan market is huge,” Artopé said. “Overall, the market we look at is €174 billion in new loans each year, but only 10 percent of that market today is online. That means the best is still to come, especially when you consider that other markets such as e-ticketing and food delivery, the online penetration is more like 45-50 percent.”