P2P Money Blog

Funding Circle's recent announcement has certainly angered some lenders.  A poll we put together on the P2P Independent Forum suggested around 85% of lenders voted that they did not welcome this change.

So what are Funding Circle are going to do?  It has been stated that Funding Circle will remove the auction element, so all loans will become fixed rate, as existing property loans.  Funding Circle will decide the rate, rather than the outcome of the auction.  This has been done so that borrowers know up-front what the interest rate will be, and it will allow Funding Circle to compete with other financial institutions.

Why are some lenders apposed to this change?  With any peer-to-peer auction they will be some lenders that get a higher than average lending rate, and some that will get a lower than average rate, depending on the rate that they bid.  The fixed rates that Funding Circle are proposing are slightly less than the average lending rates over the last few months for the majority of the risk bands.  Some lenders like the ability to perform their own due diligence and bid at a rate that they decide, rather than being told what rate to bid at.

There are a number of peer-to-peer companies that only offer fixed rate loans, so why the fuss?  The answer is most aptly given by a comment on the Funding Circle Forum:

If I want ONLY fixed rates I can easily get 12 pc secured fixed rates without fees on Saving Stream

Some people don't like change.  Some lenders will have made the conscious choice to go to Funding Circle because they offer auctions.

There have been three peer-to-peer companies that have significantly changed their lending model.  The most successful of these is Zopa, which has modified its lending model several times, with the most recent change to replace their previous market model with Safeguard loans.  Unfortunately the other two peer-to-peer companies that significantly changed their lending models are no longer trading anymore.  It could be argued that both companies had flawed business models from the start, which is certainly true of Quakle, but the other company did have a viable lending model at launch.  This company was YES-secure.

What happened to YES-secure?  In April 2012 YES-secure, who had just rebranded themselves as Encash, announced that they were reducing lending rates, effectively capping them at rates below which lenders had lent out previously.  This caused some concern to lenders who stated that they would no longer offer funds at the rates proposed.  The same month loans went unfunded and there was no response from the company to lender's concerns.  Lending virtually ceased after the cap was introduced and the company finally closed in 2014.

Funding Circle aren't YES-secure as they have been infinitely more successful, but we would ask that they pay attention to some of the comments from lenders who are their customers.

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