Fundaztic aims to double its success in 2020, focus on enhancing trust

• Unable to break even in 2019 due to risk appetite and economic conditions
• Beyond Principal Protect, a profit protection scheme is on the drawing board

IN NINE months from December 2018, the peer to peer (P2P) lending space has grown by 150% with 1,560 successful issuers, US$125.93 million (RM521.7 million) raised and 6,222 successful campaigns. These numbers were presented at SCXSC2019, Securities Commission Malaysia’s annual fintech conference.

Across the 11 licensed P2P financing platforms, 69% of funds raised amounted to US$12,069 (RM50,000) and below. Only 9% of funds raised exceeded US$48,275 (RM200,000) and the remaining 22% were between the two.

While the numbers indicate promising growth in the space, Theedgemarkets.com recently reported that Funding Societies Malaysia, the largest P2P financing platform operator, was subject to reputational damage because of a US$844,812 (RM3.5 million) note issue being on the verge of default. Although the platform is working closely to ensure repayments, the news caused some trepidation among investors in the space.

[RM1 = US$0.2413]

Digital News Asia recently caught up with Kristine Ng (pic), the founding chief executive officer of Fundaztic, to discover how they have done this year. Although Fundaztic targeted to raise of RM40 million on the platform last year, they fell slightly short at RM35.6 million. For 2020, Ng anticipates doubling the amount and “will most likely be closing the year at between RM70 to RM80 million.”

Fundaztic had set aggressive targets for itself. “The ambition was actually to try and go beyond triple and see if we could break even this year. But I think given the risk appetite of retail investors as well as our own risk appetite due to the economic situation, we’ll most likely end the year by doubling last year’s funds.”

For the first half of 2019, Ng observed a dip in credit quality. “We need to be very careful because we are dealing with public money. It is through trust and our credit valuation model that the public is investing in these SMEs, so we need to be mindful of default rates and potential write-offs.

“At the end of the day, we tell investors the notes that are rated A1 to D8 on our platform, there is not much of a difference. The fact that we are willing to host them, we have done the necessary due diligence and credit evaluation to ensure that the default will not exceed 8% per annum,” she said, disclosing that the annualised rate of default on Fundaztic is 4%.

To boost market sentiment in response to the large-scale potential P2P default, Fundaztic launched its Principal Protect scheme to assure investors and enhance trust and confidence. The scheme automatically kicks in with every 100 notes in a member’s portfolio. Investors who have invested RM100,000 and above will be protected with a RM30,000 guarantee. Those investing below this sum will be protected up to RM10,000.

The Principal Protect mechanism is offered using Fundaztic’s own funds, as credit guarantee organisations only serve banks. “We talked to te Securities Commission to see if they were open to us guaranteeing our notes, and they came back to us with approval in a couple of weeks.”

“We foresee the payout will be very little and we are well-funded,” she said, adding that Fundaztic “We are so confident that we are looking at a step-up to Principal Protect already and that is profit protection, because then it will actually drive investors to take on a higher degree of risk as the platform grows.”

Fundaztic is also looking at further leveraging on tech on its platform by enhancing its e-Know Your Customer (e-KYC) feature. “We feel that, with the advancement of mobile technology, we can leverage on what is readily available on phones. For example, facial recognition, fingerprints and voice recognition.”

The P2P platform recently acquired license approval from the Monetary Authority of Singapore and plans to launch there by mid-next year. Fundaztic is also in talks with the Bank of Thailand on its framework, Ng said, reiterating the long-term aim “to be the Malaysian startup with a regional presence.”