P2P Money Blog

There have been three companies breaking important milestones, all within a very short period of time.  Zopa, the first peer-to-peer provider in the world, have just passed the £500million mark in arranged.  Funding Circle recently have passed the £250million mark, and RateSetter have passed the £200million mark.

Congratulations to each of these companies, their staff and the lenders and borrowers that have enabled this achievement.

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Encash (YES-secure) has confirmed today that it is to close at the end of March.  This is not unexpected as the company had not made any loans in 2014 and only made three in 2013.  They are still servicing £40,000 worth of peer-to-peer loans which they have agreed to buy lenders out, including loans which are classed as late.

The following message was posted on the website:

Dear Members

We are writing to advise you that YES-Secure.com has decided to stop its Peer to Peer lending business from 1 April 2014. From that date, Peer to Peer lending will become regulated by the Financial Conduct Authority. Although Yes-secure has enjoyed offering this service, the number of members we have is relatively small. We have taken the opportunity of the change in regulation to review our business strategy and concluded, with some sadness, not to continue with Peer to Peer lending.

We have a plan to run-off this business which will ensure all our existing members are looked after appropriately and treated fairly. All our existing members have been written to explaining what will happen next. If you are an existing member who has not received a letter please contact us immediately.

From 31 March 2014 the YES-secure.com site will be rebranded and only be available to existing members to allow them to continue making payments to YES-secure.com.

The following email was sent to lenders:

We are writing to advise you that YES-secure.com has decided to stop its Peer to Peer lending business by 31 March 2014. From 1 April 2014, Peer to Peer lending will become regulated by the Financial Conduct Authority. Although YES-secure.com has enjoyed offering this service, the number of members we have is relatively small. We have taken the opportunity of the change in regulation to review our business strategy and concluded, with some sadness, not to continue with Peer to Peer lending.

As a result of this decision, we will be paying to you an amount equal to the full amount of any loans due, plus any outstanding YES-secure.com fees (if any), and all interest payable up to the date of payment. According to the Loan Agreement, upon this payment, those loans will be automatically assigned by you to YES-secure.com.

This payment will equal your "Customer Funded Lending Net Balance" plus your "Customer Funded Lending Default Balance", less any amounts which relate to loans declared default and in connection with which a County Court Judgment has been received against the borrower (as indicated under "Get Status" on your "My Funding Lending Details" page, "Late Payers" tab).

You will see that this means we have included overdue balances, even though the older balances would probably not have been recovered had YES-secure.com continued with its Peer to Peer business. We have also included balances subject to IVAs and already passed to the Collections Agency which again may not be recovered in full.

This payment will be made to the YES-secure.com Client Bank Account, and YES-secure.com will reduce the balance on relevant loans to zero, as it would have done in the event of early full repayment by a borrower. These sums will then be transferred to your Nominated Account within 7 days. In making this payment to your Nominated Account, we will use the bank details you have previously provided to us. In the event that these details have changed, please let us know promptly as otherwise your payment may be delayed and in some circumstances we may not be able to make a payment at all. As a reminder, it is your responsibility to inform us of those changes.

You also have a "My encash Account Balance", an "Auto Lending Balance" and a "Withdrawal Request Balance" outstanding. These sums will be paid to your Nominated Account in addition to the sum mentioned above.

We welcome the fact that Encash (YES-secure) have decided to buy out lenders as otherwise lenders could find themselves in the position of having money owed to them and not having the ability to chase borrowers as they don't know their identity.

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Welcome to first post written by Tom Hayward from FundingKnight, a peer to business lender who arrange crowdlending for businesses.

It’s been common knowledge for some time now that the crowdfunding industry is soon to become regulated.  We look at how this ruling will impact those who invest their money in British businesses across these platforms as the industries regulator releases a telling policy statement.

On Wednesday (6^th March) the regulator published this 95 page policy statement - The FCA’s regulatory approach to crowdfunding (similar activities) - to outline the new regime that will apply to internet P2P and P2B platforms.

The UK’s Financial Conduct Authority (FCA) has said that as of April 1^st 2014 crowdlending platforms will be need to hold a sum of capital in reserve to mitigate against the risk of failure which could potentially leave lenders out of pocket.

Reaction from the industry

The recent announcement sparked mixed emotions amongst the ‘crowd’ however it seems in the main that the regulation will serve to protect the investor and stem the flow of cash from small savers towards crowdlending platforms.

The so-called 10% rule has prompted much discussion as it’s viewed that the stipulation could prove a deterrent for small investors who typically use their disposable income to participate in crowdfunding. The pre-mentioned ruling restricts new investors to spending no more than 10% of their assets (excluding homes and pensions) during a 12 month period.

It’s worth noting however that this rule only affects equity based crowdfunding companies rather than more secure P2B lending platforms, such as FundingKnight, who facilitate loans from consumers (or peers) to businesses.

What the experts said

Chief Executive of FundingKnight, Graeme Marshall feels says “I've always supported appropriate regulation for the industry. Clearly we need regulation to cover the spectrum of crowdfunding, recognising the differences in level of risk between equity crowdfunding and crowdlending. The FCA has listened carefully to the industry and the "light touch" rules they are proposing for the crowdlending sector feel about right.”

Chris Woolard, director of policy, risk and research at the FCA, said: “We’re trying the make sure consumers are properly informed and have real clarity about the investments they are getting into.”

The FCA will ensure that crowdlending platforms provide clear information regarding the risks involved in using such services, another measure to safeguard the consumer from potential confusion or misuse.

Safety first

The key message coming from the FCA is that loan-based platforms must be transparent in communicating information about prospective borrowers to give lenders the best chance of fully assessing the risk before depositing funds. Companies must also ensure there is a contingency plan in place to ensure that loan repayments continue in the event of borrower complications. It’s likely that capital requirements will be set to help in this scenario.

More info

The new rules from the FCA come into place on 1^st April 2014, subject to transitional arrangements. In 2016 they will revisit the rules to make any further changes if they’re required.

The FCA offer a great deal of information on the regulation and crowdfunding.

Want to start lending to British businesses? Register now to invest with FundingKnight.

The P2P money website broke the news yesterday on Twitter that peer-to-peer lending was to be included in an ISA.

"The list of qualifying investments of ISAs will be extended to include peer-to-peer loans" #p2plending #Budget2014 pic.twitter.com/NpYEpo0FXa

— P2Pmoney.co.uk (@P2PmoneyUK) March 19, 2014

This is great news and the result of a campaign from the peer-to-peer industry and publications such as the Telegraph.  It is our understanding that after a consultation period, peer-to-peer lending would be included in a new ISA with limits up to £15,000 per annum.

Reactions from the industry

Ian Gurney, founder of the P2P money website:

This is fantastic news for lenders and the peer-to-peer industry as a whole.  Peer-to-peer lenders have been disadvantgaged by having to pay tax before bad debts are taken into account and therefore their net returns can be significantly less than expected.

Peer-to-peer lending in the UK has already arranged £1billion in loans, helping UK consumers and businesses, as well as investors looking for a higher return than savings accounts.  The inclusion within the new ISA will provide a significant boost to all who benefit from peer-to-peer lending.

Giles Andrews, CEO of Zopa:

Peer-to-peer ISAs are the most exciting thing to happen to the industry since Zopa launched back in 2005. This is a game changing moment for all savers. With ISA inclusion now a reality, we expect to see thousands of people transferring their existing ISAs over to Zopa once we launch them. Peer-to-peer ISAs will help provide a high tax free return and bring consumer savings back to life, even better to know is that all lending is covered by our Safeguard fund, so you can earn high returns and feel safe that your money is protected.

James Meekings, co-founder of Funding Circle:

This news is a huge win for British investors up and down the country, and represents a seminal moment for our industry. The inclusion of peer-to-peer lending in ISAs ensures British people earn inflation-beating, tax-free returns whilst helping support the country's economic recovery.

Today's news will open up peer-to-peer lending to a new audience. Over the last three years more than 30,000 people have lent more than £240M to over 4,000 businesses through Funding Circle - £130M of which was lent in 2013 alone. We're excited that people will be able to use their ISA entitlements to benefit further from our unrivalled track record in the space.

Independent research by government think tank Nesta last year found that businesses that receive a loan through Funding Circle employ on average 11 people, and see an average increase in employment of 27 per cent after receiving finance.

Graham Wellesley, Chairman and Joint-CEO, of Wellesley & Co:

We as an organisation are hugely excited about the inclusion of peer-to-peer lending within the New ISA system for savers and investors. The increase in popularity of peer-to-peer lending has resulted in the introduction of FCA regulation and mainstream government endorsement in the form of the ISA tax wrapper. Wellesley & Co aims to provide an industry leading P2P ISA product and shall develop the internal capabilities to offer this to the mass market whilst retaining the high levels of customer service and satisfaction that we pride ourselves in providing.

Graeme Marshall, Chief Executive of FundingKnight:

Its great to see that todays budget announcement confirms peer to peer loans will now qualify to be included as an investment within ISAs and it is a huge sign of confidence in the peer to peer industry. We hope it will broaden the appeal of peer to peer lending to a wider audience of savers and investors. It will also give our existing FundingKnight investors an alternative way to invest with us.

Zopa was one of the first financial institutions to introduce a forum, where existing and new members could discuss all matters concerning Zopa and peer-to-peer lending.  Zopa also tolerated criticism on the forum, and it was moderated by non-Zopa staff who were allowed a high degree of autonomy.  Can you imagine your bank allowing this?

More recently, a completely independent peer-to-peer forum was setup, funded but independent of Assetz Capital.

There are now a large number of peer-to-peer lenders who interact with one another every day.  They scrutinize changes within the sector and provide commentary on their experiences with the peer-to-peer companies.  Peer-to-peer lending was initially also referred to as social lending, a term which we didn't believe was appropriate, but there is a now a growing social element within lending circles.

When a peer-to-peer company launched their own competing forum, lenders were able to comment on their P2P offering.  When these comments were edited and criticism deleted those lenders were less than happy.  As criticisms mounted the company - who will remain nameless - threatened to close down the forum to prevent any further negative comment.  Lenders lost faith and simply stopped posting, and moved their money elsewhere.

Peer-to-peer providers do well to listen to the criticism and comments from this body of individuals.