There have been several press articles and several discussions on the P2P Independent Forum (links here and here) concerning institutional lending on peer-to-peer platforms "cherry picking" loans. The Peer-to-Peer Finance Association is believed to be looking at amending its operating principles to ensure that institutional lenders are treated the same as retail lenders. Several insiders have stated that they believe that this is not happening, but it is our belief that this is indeed happening, either directly or indirectly.
Some peer-to-peer companies have stated privately to P2P money that the costs of acquiring or maintaining a smaller number of institutional lenders is less than a larger number of retail lenders. Others have privately stated that they have offered institutional lenders lower fees in order for them to join a particular platform. These companies may not be members of the P2PFA but these practices are belived to be taking place.
Even on Funding Circle an institutional lender can reject a loan and this would then be passed on to retail lenders to fund. The due diligence an institutional lender would do for say a £250,000 loan would be significantly more than a retail lender for a £100 loan. If an institutional lender rejected a loan it is likely that their perceived risk of a loan was too great for the lending rate, and then the retail lenders would take on this loan. Therefore the institutional lender is, by the very nature of the lending mechanism, cherry picking loans.
There is a historical similarity with Zopa listings, which Zopa used to offer as well as their market model. A listing would allow a borrower to appeal directly to lenders. The credit checks for listings were less rigorous than markets, and quite a few listers - as they were known - were actually rejected borrowers from their market model. The bad debts for listings were considerably greater than on the Zopa markets and Zopa removed the listings offering in June 2011.
A few companies, such as RateSetter, have come out and publically stated that they will not treat institutional lenders any different to retail lenders, but there are others that remain silent. We would encourage all platforms to treat institutional lenders the same as retail lenders without positively discrimination, and we would welcome any change to the operating principles on the Peer-to-Peer Finance Association.
The guide covers the history of peer-to-business lending and why businesses are now choosing peer-to-peer.
Why small businesses are choosing P2P business lending over bank borrowing?
- Small businesses are disgruntled with the banks, who are often unable to lend to some small business because they fail stringent lending criteria.
- Lower interest rates are available partly because P2P business lending platforms don’t have high street branches to run.
- It’s faster –the speed of access to funding and the ease of platform use are valued highly by P2P business borrowers1.
- It’s easier – 91% of P2P business borrowers think it’s an easier way to get funded than traditional channels1.
- There’s no middleman – the individual lenders put money directly into the business using the P2P platform as a tool to do so.
- It’s up to the public if a business receives the loan, rather than a banking institution.
The guide includes all of the leading companies such as Funding Circle, ThinCats, Assetz Capital, Funding Knight, rebuildingsociety, Funding Tree and Funding Empire. It also states that sole traders can also use peer-to-peer providers such as Zopa and RateSetter.
This is an essential read for companies looking to raise capital.
Following LendIt Europe, P2P Heros have arranged a peer-to-peer lending industry summit in July. The speakers include Graham Wellesley, CEO of Wellesley & Co, Kevin Caley, CEO of ThinCats and Daniel Rajkumar, CEO of rebuildingsociety amongst many others. The full list of speakers is on the P2P heros website.
The cost for this is currently £595 - this price which includes an "early bird" discount expires on the 29th May so those interested need to act fast to take advantage of this.
Zopa has today announced that it has entered into an agreement with Metro Bank to allow funds to be lent through Zopa's peer-to-peer lending platform. This follows previous agreements between banks to refer borrowers, but this is one of the first where a bank is actually lending through a peer-to-peer platform.
On one level this could been seen as a bank effectively outsourcing some of its lending capability to a 3rd party, but it could also indicate that the returns or scale of lending the bank could achieve through Zopa were more than it could do itself.
This could be the start of a pattern within the industry and could cause some retail lenders to feel that the first "peer" in peer-to-peer lending is now being diluted by institutions.
Here is the full statement from Zopa:
Peer-to-peer lending pioneer Zopa has today announced a partnership with leading challenger bank, Metro Bank, to lend funds through Zopa’s online marketplace.
This innovative deal is the first of its kind in the UK and a clear signal that some parts of the UK banking sector are embracing Zopa and P2P lending as a new asset class. Metro Bank, the first high street bank in more than 100 years, has already begun lending funds to Zopa’s consumer borrowers.
Zopa and Metro Bank believe this partnership is a great example of how disruptive financial challengers can collaborate to provide additional value and revolutionise the UK banking sector. This move demonstrates how Metro Bank is leading the industry by embracing P2P lending as a new asset class.
By lending through Zopa’s proven platform which has over a decade of lending experience, Metro Bank will be helping UK consumers get a loan to finance a car, home improvement or consolidate existing debts such as expensive credit card debt, and in turn generate an attractive rate of return.
Giles Andrews, CEO and co-founder of Zopa, added: “This is another milestone for Zopa and the P2P industry as this partnership brings together two key challengers to the traditional financial services landscape and signals our intent to become a mainstream service. Partnering with Metro Bank is an exciting move for Zopa as I believe both companies share the same values in providing exceptional customer service but through different channels.”
“This unique partnership is the first of its kind in the retail banking sector and a clear sign that Zopa is a trusted platform not only for consumers but also for institutions to deploy their funds. We’re delighted that Metro Bank is lending through Zopa and we look forward to working even closer with Metro Bank on future opportunities and products.”
Craig Donaldson, Chief Executive Officer at Metro Bank commented: “At Metro Bank we’re committed to revolutionising UK banking and we’re delighted to have partnered with Zopa, a fellow financial challenger. We are continually looking to work with partners that can benefit our customers and Zopa are the perfect players in the P2P space to help us lend funds to consumers.”
“The partnership we have with Zopa is a cultural fit that works perfectly with our commitment to providing a convenient and customer-focused banking experience and we look forward to working with them closely.”
Wellesley & Co are now offering up to 1.5% cashback on their mini-bond, but this is only up to 22nd May.
Here is the blurb from Wellesley & Co on their mini-bond:
The mini-bond gives investors the chance to be part of our ongoing success, by investing in the company's expansion and contributing to its secured lending activities. Wellesley Finance fund all loans matched by Wellesley & Co. The success of our business model where Wellesley Finance PLC retains a proportion of every loan on a subordinated level, has brought rapid growth in recent years.
Funds raised will be invested in asset-backed loans that are also available on Wellesley's peer-to-peer lending platform, operated by Wellesley & Co Limited. Wellesley & Co has funded over £200million of secured loans to date and is recognised as the fastest growing peer-to-peer lending platform in the United Kingdom.
|3 Year Bond
6% gross per-annum
Receive 1% cashback
|5 Year Bond
7% gross per-annum
Receive 1.5% cashback
All interest is paid net of basic rate tax and the bond is non-transferable and cannot be sold or traded on a secondary market, but bond holders can request that their bond be repaid early. Investors should also read the small print to determine if this bond is a suitable investment. Like other peer-to-peer products the mini-bond is not covered by the FSCS (Financial Services Compensation Scheme).