P2P Money Blog

After signing up to Money&Co last week, we've taken a look around the site.  How does this site compare with the likes of Funding Circle and Zopa?

The overall look and feel of the site is quote impressive, but with any financial institution it is the detail that really counts.  Money&Co have a detailed information on the site within a FAQ section for both lenders and borrowers.  As for costs, lenders are charged a flat 1% fee, like Zopa and Funding Circle.  Borrowers are charged a £150 application fee and a completion fee of between 1.5% and 5%, whereas Funding Circle charge a completion fee of 2% to 4%, so these fees are comparable.

The loans are split by risk rating, using the categories A+, A, B+, B and C+.  The A+ category is the lowest risk with an estimated bad debt of 0.5%, and C+ category being the highest risk with an estimated bad debt of 1.5%.  While the FAQ does not state if these are annual or lifetime estimates, we have confirmed that these are annual figures.  With a C+ category loan having an estimated bad debt rate at only 1.5%, it would equate to an A category loan on Funding Circle.

Funding Circle are currently performing better than their bad debt estimates, but with an immature and growing loan book, their bad debt will increase over time.  Of the three peer-to-peer companies that exceeded their bad debt estimates, only one is currently still operating!

The difference here with Funding Circle is a little surprising, but as Chris Lake, Chief Lending Officer at Money&Co explained, they are targeting prime borrowers that can obtain finance from banks currently.

There are currently four loans on Money&Co, of between £100,000 and £1million, with the auctions closing in just less than 3 weeks.  Chris Lake explained that Money&Co would be able to fill these loans through their extensive contacts of high net worth individuals and the "crowd".  There are already some bids of £10,000 on some of these loans, along with bids down to £10.

The account summary screen is very clear and well presented like the rest of the site.  The bidding screen is a little bit harder to use, with lenders having to click the up and down arrows to change the lending rate by 0.1%.  While there appears to be no upper limit on the lending rate, the lower limit set to 1% above the estimated bad debt.

Money&Co have joined the UK Crowd Funding Association (UKCFA) rather than the larger P2P Finance Association.  The term crowdfunding is used extensively on the site, while there is no mention of the term peer-to-peer.  This may be confusing for established lenders who would recognise peer-to-peer lending.  There have been several discussions on the correct terminology and while crowdfunding has been used as a generic term for both equity and debt crowd funding, peer-to-peer lending or crowdlending is the generally accepted term for debt crowd lending.

Overall we are quite impressed with the Money&Co site, but they are up against the likes of Zopa, Funding Circle and RateSetter who have 90% of the market share, and also competing with new companies such as Wellesley & Co and Assetz Capital.  With loans of £1million, we will wait to see how successful they are in attract high net worth lenders to the platform to fund these loans.

Full story »

Saving Stream, one of the newer peer-to-peer providers specialising in lending against assets, has announced the launch of their secondary market.  The company has interacted with lenders on the P2P Independent Forum and we believe this has been a useful discussion for both Saving Stream and existing lenders.

Here is the full statement from Saving Stream:

We are very pleased to announce the launch of the Saving Stream Secondary Market.

This feature allows you to release all or some of the capital in your loan part, prior to the loan ending. You can choose to sell all of, or a percentage of a loan part. This value is then added to the available funding on the 'Loans' page to give other investors the opportunity to purchase the loan part value.

Once 100% of your designated loan part has sold, the loan part value will be credited to your available balance for withdrawal or reinvestment. The interest earned will be credited to your available balance upon repayment of the loan. Interest will cease to accrue on your loan part at the point at which you confirm you wish to sell it.

A loan part can be sold by visiting the 'Loan Part Detail' page which can be found under Account > Dashboard > Live Loan Parts and by selecting a loan part.

You may experience an increased time for withdrawal processing if your loan part has been purchased by an investor who funded their account using the GoCardless method.

Funding Circle announced they will be offering what they refer to as "whole loans".  These are loans that will be offered to institutional investors rather than lenders on the current Funding Circle platform.

We were well aware that institutional investors are interested in peer-to-peer lending, and while we are hugely supportive of Funding Circle and what they have achieved, we view this as a backward step as it places institutional investors on a different footing from retail lenders.

The rational behind this is probably two fold.  Firstly as Funding Circle look to grow their business they need ever more lender capital, and while retail lenders are increasing both in number and funds invested, this may be insufficient to meet Funding Circle's growth targets.  Secondly, a large injection of new lending capital would also reduce lending rates, which have risen over the last couple of months, possibly to the point where loans are starting to be less competitive from the borrower's perspective.

I would argue that a better solution would be for institutional investors to be able to bid, automatically if required, in chunks of several thousand pounds.  The comments on the Funding Circle forum and the Independent forum have also expressed some concerns with the current Funding Circle proposal.

Here is the statement from Funding Circle:

It’s been a fantastic start to the year at Funding Circle. The announcement of additional funding by the Government-backed British Business Bank and the introduction of regulation by the FCA helped to drive a record quarter of lending, with more than £53 million lent to small businesses across the UK - more than two and a half times the amount during the same period of 2013.

At Funding Circle our goal is to build a better financial world by helping as many businesses as possible to access finance, and investors to earn attractive returns.

Over the last few months you will have seen an increase in lending opportunities with record levels of demand from businesses across the UK. Within the next 12 months we expect demand to increase substantially, and our aim over the next few years is to grow to become a significant part of the small business lending market. In the UK, this is an estimated £7.5bn per month market.

To achieve this we want to ensure we have a diverse range of investors at Funding Circle. More investors helps us to attract more businesses, as we have seen from the Government’s involvement. This helps to deliver more lending opportunities for everyone and ensures long-term stability and sustainability for the Funding Circle marketplace.

As you will probably be aware, we have mentioned before that there is a lot of interest from organisations, such as pension funds, insurance companies, family offices and hedge funds, to join Funding Circle to lend.

We have been considering the best way to introduce these new types of investors to the marketplace in a way that is sustainable and also protects the experience of individual investors.

As part of our considerations we have closely followed the developments of the US peer-to-peer lending market over the last 18 months, where larger investors have purchased whole loans rather than lots of individual loan parts. This has shown to us that introducing the ability for investors to buy whole loans is a successful way of creating more lending opportunities for everyone, whilst also protecting individual investors’ Funding Circle experience.

Today we’re announcing that from early May we will be starting a one month ‘whole loans’ trial with a small group of non-bank financial institutions who will lend up to £3m in total. These whole loans will be purchased in full and it will not be possible for individual loan parts to be purchased, as is the case with the ‘partial loans’ that are listed today.

Initially, this will be a closed trial and last for one month beginning 1st May. During the trial whole loans will not be visible on the marketplace; however we will continue to publish details of every loan in our loan book and clearly indicate whether a loan is a whole loan or a partial loan.

While we anticipate most investors will continue to prefer lending on partial loans, once the trial has been successfully completed we will make whole loans available to any interested investors. You can register your interest after the trial by contacting us at [email address removed].

Today’s news does not mean individual investors will become any less important to us. Helping individuals earn attractive returns by backing British businesses is in the DNA of Funding Circle. It is something we are very proud of and will remain a core part of the business as we grow.

For more information about today’s news, visit our FAQs or join us on our forum where we will be discussing this in more detail. You can also read more here about how whole loans have worked in the US.

We hope that Funding Circle will reconsider these plans in light of the feedback from lenders.

There are now just under 30 active peer-to-peer companies within the UK.  In five years time, how many of these will actually be around?  What will cause one site to survive when another does not?

If this was a simple question then there companies such as Quakle and YES-secure would still be around.  We can look into individual cases and come up with answers, but those answers wouldn't address the finer points of what makes a successful site.

Publicity

It is fairly obvious that in order to be know, a company will need to publicise itself.  With high profile management or backers this is a lot easier to do than if the management team are less well known.  This can be seen with the press coverage that Money&Co have managed to achieve considering they are yet to go live.

Being listed on sites such as the P2P money website will certainly attract additional publicity.  Appearing on the P2P money comparison tables, which have appeared several times within the national press, will certainly help.

Product

Publicity will certainly give a company a big boost, but if they don't have a good product then customers will go elsewhere.  RateSetter has been very successful because it offered a simple, easy to undertstand product.  Their rates can be lower than some of their competition but lenders have been attracted by their provision fund which offers additional security.

Perception

How a company is perceived will greatly affect how successful it is.  In the peer-to-peer arena this is especially important, as lack of confidence with lenders or borrowers can kill any business, and this is perhaps the attribute that has affected the majority of the peer-to-peer failures.

When a certain peer-to-peer company launched, they were up against Zopa, who were - and still are - hugely successful.  This new company started to do the right things with publicity and they had a decent product.  However when they started commenting on their own product on various forums, including Zopa and LoveMoney - pretending to be lenders - this gave prespective lenders a negative perception of the company.  Were they that desperate to try to get lenders?  This company also ran a forum, and when they started deleting any negative comments and changing posts to put the company in a good light, a lot of lenders - including myself - lost faith and simply stopped lending.  This was the beginning of the end, and this was probably only a few months after a positive launch.

If we look at the leaders within the UK, which are Zopa, Funding Circle and RateSetter, lenders will know they all have a good product, they are good at publicising themselves and all have operated reward schemes, and they are perceived to be trustworthy.  Upcoming peer-to-peer companies should take note!

Full story »

RateSetter was the first peer-to-peer company to introduce the concept of provision fund to protect lenders where a borrower is unable to repay a loan.  This is a fund that would step in and reimburse lenders all outstanding capital and interest, and then chase the borrower for repayment.  All borrowers pay into this fund by means of a fee when they take out a loan.

This provision fund has today been re-branded as the 100% Fund.  This is to highlight that while there is no Financial Services Compensation Scheme (FSCS), RateSetter has been able to ensure that all lenders have received back every penny they have lent.

Here is the full press release:

P2P pioneer RateSetter took to the streets of the capital to raise the issue of saver protection and promote the ground-breaking platform’s 100% Fund.

Bemused onlookers witnessed a man swaddled in bubble wrap rolling down stairs and facing a series of perilous challenges - including the daily struggle with tube doors. The stunt highlighted that, whilst the 100% Fund can’t protect you from everyday life, it does protect your money!

RateSetter believes the focus of the burgeoning peer-to-peer (P2P) industry post-regulation should be on ensuring no saver ever loses money, even if borrower defaults increase in a souring economy.

The platform’s Provision Fund is the most established in the industry, the largest at £4m, and boasts a 100% track record. None of its 11,500+ savers have lost a penny since RateSetter launched in 2010, despite over £210m having been lent out. This is a unique feat amongst the major P2P lenders.

In recognition of fundamental advancements that the platform has now made to continue this impressive achievement, RateSetter has renamed it as the 100% Fund.  These advancements include:

1. Comprehensive coverage of current default rates of 0.47%. RateSetter believes any coverage below 150% is putting lenders at risk; it currently has over 180% coverage of likely borrower defaults and is due to hit 200% in 2014.
2. A RateSetter Credit Committee to monitor borrower defaults in real time, which can vary borrower levies to bolster the 100% Fund if the overall default rate increases.
3. 360 degree credit checks. New affordability, fraud, identity and third-party lender checks of its potential borrower-base in addition to industry standard credit checks.
4. Immediate return of funds to lenders in the event of a borrower default. Swift repayments unlike secured lending.
5. A Resolution Event to be activated if the 100% Fund is depleted, distributing pooled borrower repayments to lenders.
6. A Fully Funded Run-Off Plan, approved by the regulator, to activate in the very unlikely event RateSetter ceases to trade. It will rapidly match borrower repayments with lenders via a segregated fund platform.

Rhydian Lewis, founder and CEO of RateSetter, said: “Our stunt highlighted a critical issue. We are at a cross roads in the P2P industry following regulation by the Financial Conduct Authority, but we need to move far beyond this if we are to put any saver anxiety over our sector to rest. As a recognised, regulated sector, savers and borrowers will continue to turn to P2P as a flexible and hassle-free alternative to the banking industry. But the individual platforms must go further to protect savers if the reputation of the industry is to flourish in the years to come.”

“With so many new entrants to the market offering negligible security to savers, we must draw a line in the sand now and call for all P2P players to step up their game to ensure our sector’s longevity. We need to provide an adequate level of safe, easily accessible funds if the sector is to attract the same numbers of savers as borrowers. Carefully vetting who is borrowing through our platforms is central to this.”

“Let customer protection be the lynchpin of our industry at this crucial time in our development. Everyday savers will ask for nothing less and we must rise to the challenge.”

Joe Levey, a RateSetter saver, added: “RateSetter recognises the fact that customer protection must be at the heart of P2P. The 100% Fund is testament to this and ensures that savers are fully protected from any potential borrower defaults. It is the reason why I am confident to put my money into the platform, and the characteristic that will continue to attract Britain’s hard-pressed savers!”

Recent figures released by the P2P Finance Association, of which RateSetter is a founding member, show there has been a dramatic uplift in borrowers in the P2P sector between January and March this year: they have risen by 17%, compared to a 5% rise in savers.

RateSetter took the crown of the largest peer-to-peer lender in the UK by the amount of new loans originated for the first time in March, with total inflows of £21,105,355. Its business grew at 219% in 2013 compared to overall sector growth of 107% (NESTA, Dec 2013), making it the fastest growing major peer-to-peer company in the UK.

RateSetter’s unique approach has led to widespread industry and customer accolades, with the company winning MoneyNet’s 2014 award for Best Peer-to-Peer Savings Provider, Credit Today’s 2013 award for Alternative Lender of the Year and Moneywise’s 2013 customer voted award for ‘UK’s Most Trusted Loan Provider’. RateSetter is also the most highly rated personal loan provider in the UK according to ReviewCentre.com, the leading independent UK consumer review site, with 99% of 619 customers saying they would recommend RateSetter to others - the highest of any financial service provider.