Paul Mathieson is what you might call a born entrepreneur. He started his first computer business at age 12, and by the time he celebrated his 19th birthday he was a full-fledged stockbroker. “I came from a small country town in Australia but I was always interested in the larger business world,” he says, adding that he enrolled in an accelerated Bachelor of Commerce program in Queensland and did three semesters a year, graduating by the time he was 19. During his 20s Mathieson went to work for Daiwa Securities, the second-largest Japanese brokerage firm, and then took a position as head of research for a boutique stock brokerage in Australia. “I was heavily involved in researching industrial companies and running IPOs and underwriting committees and preparing prospectuses, and I did that for a few years before founding IEG Holdings’ Australian operations in 2005.”
Today, IEG Holdings Corp. (OTC Pink Sheet: IEGH) is a leading provider of unsecured loans from $2,000 to $10,000 in the United States and Australia under the consumer brand Mr. Amazing Loans. Headquartered in Las Vegas, the company is currently licensed and providing loans in Nevada, Illinois, Arizona and Florida, and is planning to obtain additional licenses in New York, New Jersey, Texas and California.
Opportunist: You have an extensive background in the financial sector, Paul. What made you decide to enter the personal lending arena?
Paul Mathieson: After a short period doing M&A and corporate advisory work for ING, I was approached by a company in the payday lending space that was involved in higher interest small loans. I spent a month doing due diligence with a view to conducting a potential IPO and that opened my eyes to the industry. Unfortunately, I couldn’t get the deal off the ground because that company lacked the professionalism and the systems to become a fully reporting public company. I had a lot of interest in pursuing it myself, so I spent the next five years successfully running a structured derivatives company based on five stocks that I researched—making investors returns in the multiple hundreds of percent. A considerable amount of my time was spent building networks of investors and financial experts and accountants, and as my 30th birthday approached I was contemplating multiple opportunities. Meanwhile, a friend of mine who was working at PricewaterhouseCoopers called and said he was advising a company in the high interest, short-term loan space and thought I should have a look at it. I didn’t think much about it until a few weeks later when a neighbor approached me randomly and said he and his friend wanted some advice about a franchise they wanted to buy that was, coincidentally, in the same high interest lending business that my friend was involved with. Suddenly, the idea was popping up everywhere! That captured my attention, so I suggested that my neighbor and his friend consider putting $200,000 into a brand-new business instead of buying into a franchise. I believed I could set it up and do better than competitors with better branding and a much more cost effective and fairer structure that was affordable to consumers. So, on the first of February 2005, Mr. Amazing Loans was formed.
Opportunist: Where did you get the name?
Paul Mathieson: It was just something I came up with on the weekend of my 30th birthday. Everything grew very rapidly after that. I prepared a business plan, did my market research and by June of that year I opened my first office in Australia. It was just me and one person as the customer service representative. I was doing all the loans and underwriting—just learning as I went along because I had never loaned a dollar before.
Opportunist: Was it easy to get things off the ground?
Paul Mathieson: At first we would hand out fliers on the street. We were structuring the company as we went along. I was basically doing everything it took, as well as raising money. Everyone I approached with the idea was so happy to back me in a new venture that I probably could have gone into just about anything quite frankly. As 2005 came to a close, we had opened six offices in only six months—and I had lent out $1 million. Thirteen months after I came up with the idea for Mr. Amazing Loans we became listed on the Australian Stock Exchange and the company reached a $50 million market cap. So we essentially went from zero to $50 million in 13 months—with thousands of customers on the books. It was an incredible success.
Opportunist: Were your original benefactors glad they went with you instead of a franchise?
Paul Mathieson: They made $10 million from their initial $200,000 outlay—50 times their initial investment—in 13 months. So, yes, they were very glad.
Opportunist: What happened next?
Paul Mathieson: Our stock continued to do well; we had a $100 million debt facility out of New York, and within two and a half years we grew to 48 offices and 100 staff members across five states in Australia. Then the global financial market imploded and we decided to reverse course and repay the debt facility, consolidate and close branches. Australia suffered some high profile bankruptcies, the second largest home loan company went belly up and suddenly it was very hard to find money. There was no capital available for companies in the finance space anymore. Everyone was interested in bricks and mortar. Unemployment was spiking and bad debts were rising so we figured it was time to batten down the hatches. By early 2008 we had raised enough capital to move to the United States and replicate our business model here. We hoped to gain access to funding and a market 100 times the size. I basically packed my bags and moved here without knowing a soul.
Opportunist: What are the differences, if any, between how the company operates in Australia vs. the United States?
Paul Mathieson: The U.S. is a very competitive market and similar in many ways to Australia, but I found it took a lot more time to get the business off the ground. Businesses were closing at the time we were launching in the U.S., especially banks. I was eventually introduced to a CEO who was a specialist in acquiring banking type licenses. He was associated with a group out of Orange County, Calif., that connected me with the chief operating officer of another company. With his assistance, in 2009 we submitted an application to do loans for Nevada. It was a very slow process that took 14 months to get approved. It was nerve wracking but we wanted to keep the regulators happy—you only have one chance—so we were patient. Finally, on Sept. 1, 2010, we opened our doors in Las Vegas. Then, to get more population coverage, we applied for licenses in Illinois, Arizona and Florida. It took about a month from application to approval in most states, including approval from the Better Business Bureau. At that point we couldn’t operate solely online as licensing required at least one physical branch in each state. It was only after establishing ourselves with a strong track record of regulatory compliance that the Florida, Arizona and Illinois regulators were satisfied enough to grant us special exemptions to operate online out of our centralized Vegas head office.
Opportunist: Payday loans have received some bad press lately. Can you explain the difference between Mr. Amazing Loans and payday loans?
Paul Mathieson: First of all, the payday loan industry in its entirety is huge—at $40 billion-plus per annum. There are a lot of people against the payday loan industry and while the federal government doesn’t have authority to stop it, 17 states have enacted double-digit rate caps that basically restrict their ability to operate. Some companies use loopholes but the government is closing in on those too. The Consumer Financial Protection Bureau is implementing measures that apply pressure on unfair practices, and a number of states are increasing regulation of the industry. New York, for example, just shut down the whole payday loan industry and said if you charge more than 25 percent you’re out of business. They also forgave all outstanding payday loans. How could those companies be allowed to charge consumers over 300 percent for a loan, which is what they were doing? And they were very open about the rates they charged. They are being shut down and lots of funders are running scared. While payday lenders are charging upwards of 300 percent for short-term loans, Mr. Amazing Loans’ interest rates range from 19.9 to 29.97 percent inclusive of all fees, which makes us a highly favorable alternative.
Opportunist: Do you believe any of those companies will restructure and adopt a fairer business practice?
Paul Mathieson: Most payday groups charge more than 300 percent interest and many are under massive pressure right now. After charging 300 percent for 30 years, why would they suddenly want to be the good guy and charge less? That would be extremely hard for them. I haven’t seen anyone move from high interest lending to trying to do what we do.
A payday lending product is designed around a consumer needing $500 and being required to pay it back within two weeks at an exorbitant rate. If you haven’t got the $500 one week how are you going to find it the next? Our $2,000 loan costs the borrower $14.82 a week over a five-year period. For a $3,000 loan, it’s only $22 a week. They can pay it off early with no extra penalties and no extra fees. And if our customer can’t make payments, we can put them on hold until they get back on track. It’s the convenience of what we are doing at a fair rate and it works for everyone. Their payment is so low that it makes very little difference to their weekly budget. Also, we do a convenient direct-debit. That is our selling proposition. These other businesses are based on short-term high returns whereas we set up a model where we are helping the consumer and doing what the government intends, so I think we will continue to do well.
Opportunist: Who is your competition?
Paul Mathieson: There are no direct competitors; however, we have many indirect competitors, such as some of the credit card products. Credit cards can be a debt trap for consumers, though, because 70 percent of borrowers tend to pay just the minimum amount due and that can drag it on for 10 years or more. The product demand for small loans in a quick period of time has been there for 100 years, but very few banks participate today. Wells Fargo offered a similar product in the 1980s, but they prefer to focus on the bigger ticket items.
The barrier to entry in this business is enormous. It’s a minimum three-year process to get established and show the history of what you’re doing. We aren’t creating the market but we are the first with a moving advantage. As we get bigger we can continue to reduce our pricing.
Opportunist: How are you able to maintain such a different business model?
Paul Mathieson: My background enables me to structure things in a way so that banks and hedge funds will provide funding. It’s just too much for a typical small operation and some of the others are so used to charging high rates in such a short time that they aren’t interested in a different model. We have received a lot of support for our model and the consumers appreciate the differences. People come to us trapped in a debt cycle from payday loans and we help them out and offer them a much more sustainable position.
My philosophy is to try to continually lower our rates as my cost of funding goes down. Over time I have lowered our fees whenever possible. If we can get inexpensive enough, large wholesale funding directly through the bond market or banks, I would like to offer lower rates. Our cost of funding is currently at the level that we need to charge in order to make the business work. We would like to be the McDonalds of small loans across the world.
Opportunist: We understand you recently took the company public. What are your hopes for the stock?
Paul Mathieson: Yes, we began trading in October. We would like to one day be listed on the NASDAQ or the NYSE.
Opportunist: Where do you anticipate IEG Holdings will be five years down the road?
Paul Mathieson: My vision is to be licensed and lending in most states of the U.S. and also successfully operating online under the Mr. Amazing Loans brand in Australia, Philippines, Canada, New Zealand and U.K. We aim to have a $1 billion-plus global loan book continuing to provide a great product for our customers and fantastic returns for our investors.
Leslie Stone is an award-winning writer/editor with more than two decades of experience covering business, finance and lifestyle issues for newspapers, magazines and online publications. Originally from Virginia, she currently resides in the Orlando area. Follow her on twitter at @les7989.
IEG Holdings Corp. - http://www.investmentevolution.com/
Mr. Amazing Loans - http://www.mramazingloans.com/