P2P Money Blog

Many happy returns to RateSetter who turned two years old this week.  It seems quite amazing for a company to go from nothing to arranging just shy of £37million in loans in 2 years in what was a niche sector.  In the last two years not a single lender has lost any money to defaults due to RateSetter provision fund.  Even without the provision fund, bad debts on RateSetter are significantly less than their peer-to-peer and peer-to-business peers (if that makes sense) !

RateSetter also announced some changes to lender deposits and withdrawals from next week.  Lenders wanting to depot funds can still use bank transfers free of charge, but there will be a £1.50 fee for debit cards.  Lenders wanting to withdraw funds can still use BACS free of charge, but there will be a £3.00 fee for use of FasterPayments.  By comparison Zopa, the peer-to-peer leader in the UK, doesn't offer debit card payments.

Over the last two years RateSetter has established itself as the number three P2P company by some margin, and along with Zopa and Funding Circle have established the P2P Finance Association.  The very best wishes to both RateSetter, their team, and not forgetting the lenders (which include myself) and borrowers that have made RateSetter the success.

Funding Circle have updated their lending process, so that each bid no longer requires the page to refresh.  This will both improve the responsiveness to the end user, and also reduce the load on the Funding Circle web server.

Previously users would either have to wait until the page had refreshed to perform a second bid, which was slow due to the amount of data, or alternatively click "bid" just at the right time just before the page had reloaded.

This is another step forward to allow Funding Circle to efficiently support even more loans.

It was back on the 23rd April that we reported that Funding Circle had just passed the £30million mark in the amount of loans it had arranged.  Today we can report that they have now passed the £50million mark.  If our maths are correct this is equivalent to a 240% year-on-year growth rate, which is absolutely phenomenal in the current economic climate.

At this growth rate Zopa's clear position as the number one peer-to-peer lender in the UK will be under threat within two years.  Well done to everyone at Funding Circle for this amazing achievement.

FundingKnight is the latest entrant to the peer-to-business (or "crowdlending" as they prefer) market.  Other companies operating in this segment are Funding Circle and ThinCats.  FundingKnight are targeting secured loans of between £10,000 and £100,000 of which individual lenders can contribute as little as £25.  They are also offering a "Loan Exchange" facility where lenders can sell loan parts.  We are in the process of finalising FundingKnight's attributes on the P2P money comparison page so that will evolve over time.

Looking at the website, it is well designed with clear graphics and colour schemes.  We look forward to seeing the site in action, as they already have borrowing requests, and we'll report back later on this.  This is going to be an exciting time as the P2P market continues to grow at a phenomenal rate with innovative solutions from new entrants such as FundingKnight.

Zopa announced yesterday that they will be dropping the "C" and "Y" markets from October.  The "C" markets are the highest risk category that Zopa currently caters for with estimated bad debt rates between 4.2% and 5.2% per annum.  The top of the "C" market will be integrated into the "B" market, with the remainder falling outside the scope of Zopa.

The "Y" markets are for borrowers between 20 and 25 years of age.  These markets are also currently regarded as higher risk with estimated bad debt rates between 3.1% and 5.0% per annum.  The "Y" market be integrated into the remaining "A*", "A" and "B" markets, with the possibility that some would not meet these criteria.

There will also be a change to remove the option to opt-in to receiving a rapid-return loan.

Here is the full statement from Zopa:

We are making improvements to the Zopa Markets and how we group the UK's safest borrowers, to make it easier for lenders like you to set their rates and make great returns.

What improvements are being made?

1. The Y market

This market is where we group young borrowers aged 20-25, who have a great credit rating and a sensible approach to money. We are going to move them into the A*, A or B market so they are grouped more fairly based on their credit rating, rather than just their age. As such, this will not affect the bad debt estimate in each market.

This will also help attract safe, young borrowers to Zopa and, as many of our lenders enjoy helping young people to buy their first car, you will be able to look at the age of your borrowers in your loan book.

2. The C market

Due to our careful checking, we only accept a very small number of borrowers in the C market. This means only a small amount can be lent to C borrowers and lenders tend to offer lower rates to compete in this market.

To help lenders get better rates, and having received feedback that managing rates across so many markets is time-consuming, we are going to remove the C market. We will accept only the highest rated C borrowers into the B market. These borrowers behave like B borrowers and will not affect the bad debt estimate of this market.

3. Accepting Rapid Return loans

To make it simpler to set up and manage lending offers, we are removing the tick box about accepting Rapid Return loans. All lenders will be eligible to take loans transferred via Rapid Return, which may offer a higher rate and do not have any missed payments.

When will this happen?

In October we will no longer have C and Y markets and they will be removed from your lending offer. You will continue to offer to the other markets as before, and you will still be able to see your existing loans to C and Y market borrowers in your loan book.

What do you need to do?

As the bad debt expectation in A*, A and B markets will not change you do not need to do anything. However it's always a good idea to review your rates regularly to make sure you are lending money and getting a good return.

Following on from the demise of listings, the removal of the "C" and "Y" markets will reduce the risks to lenders still further as Zopa positions itself to focus on only the best and least risk borrowers.