RateSetter's provision fund tops £1million

June 5th, 2013
RateSetter

RateSetter, the UK's second largest peer-to-peer company specializing in personal loans, has announced this week that its provision fund - the pot of money that will repay lenders if their borrower defaults - has passed the £1million mark.

With RateSetter's £47million on loan and a current lifetime bad debt rate of only 0.36%, the provision fund would cover future bad debt 6 times over.  If bad debt were to rise to RateSetter's estimate of 1.4% the provision fund would still reimburse lenders with a significant amount of money to spare.  RateSetter have been very transparent with the data concerning their provision fund, and have the motto "Every Lender, Every Penny" as, to-date, no lender has suffered any loss to their capital.

Zopa, the UK's largest peer-to-peer company recently announced their SafeGuard product, which works in a very similar way to RateSetter's provision fund.  It is also expected that some new entrants will offer similar products.

Zopa loans at 4.9% APR

May 17th, 2013
Zopa

Zopa, the leading peer-to-peer company in the UK, have loans of £8000 over 36 months at a record low of 4.9% APR for an A* borrower.  Loans of between £8000 and £10,000 have an APR of less than 5.0%.  This is a market leading rate and should attract a number of borrowers.

A busy year in P2P lending

May 15th, 2013

The year 2013 is proving to be a monumental year for peer-to-peer lending having passed the £500million mark of loans arranged, with lots of new companies launching or looking to launch within this space.  Are these companies simply jumping on the bandwagon or are they bringing anything new ?

The UK peer-to-peer market is growing in excess of 100% per annum and this is increasing, so it is inevitable that this will attract a lot of attention from new businesses.  I believe that only a few companies have simply jumped on the bandwagon as most are offering something new, or targeting a niche market.  It is encouraging that companies are not afraid to try something new, and while not all of these will be successful, this is a good example of Darwinian evolution in a commercial context.  It is likely in ten years time that most P2P companies will operate a similar business model, or operate in a specialist sector.

There are already certain aspects that new companies are offering by default, such as the provision fund pioneered by RateSetter, guarantees pioneered by Funding Circle, or secured lending pioneered by ThinCats.  Zopa, the company that started peer-to-peer lending in 2005 has over the years offered a variety of lending models, but the one that is still used, and used elsewhere within the industry is the market model where multiple lenders are automatically matched to a single borrower.

In the UK the top 4 peer-to-peer companies (by outstanding loans) have over 95% of the this market (these comprise Zopa, Funding Circle, RateSetter and ThinCats).  New companies are taking some market share, but these companies have to offer something to attract lenders and borrowers.  A company with lots of potential lenders and no borrowers will be as equally unsuccessful as a company with no lenders and lots of potential borrowers, so marketing has to target these types individually.

New lenders would be attracted by a higher reward to risk ratio, lower fees and whereas new borrowers would be attracted by lower interest and lower fees.  Peer-to-peer lending already has market leading rates for borrowers, but not every borrower will pass the high bar for credit checks.  If P2P companies relax the requirements for borrowers it can have a severe negative impact on bad debt rates months or years down the line, and several companies have experienced this with disastrous consequences for lenders and the companies themselves.

The P2P money website is unique as it is the only site to publish comparable rates between companies and bad debts, so lenders and borrowers can choose the best company for them.  The one bit of advise I can offer is that all new companies should be as open and honest as possible about bad debt estimates, lates (loans that are currently late), and defaults, as they will live or die by these statistics.

Funding Circle and RateSetter win awards

May 10th, 2013
Funding Circle

Funding Circle and RateSetter, two of the leading P2P companies in the UK, were winners in the CreditToday awards.

Funding Circle won the Alternative Lender of the Year (Commercial) and RateSetter the Alternative Lender of the Year (Consumer).  This is further recognition that peer-to-peer lending is having a major impact in the finance, and is a driving force for better rates for both borrowers and lenders.

Full story »

Zopa launches safeguard

May 1st, 2013
Zopa

Zopa has launched a new feature to protect lenders from bad debt called "safeguard".  Where a borrower is unable to repay their loan, the safeguard will step in.  It is our understanding this will operate similar to the provision fund operated by RateSetter.

Safeguard is advantageous for lenders as it will give them more certainty of what their return will be.  This will also reduce the tax that lenders would otherwise have to pay (as tax is paid before bad debt), but with safeguard Zopa will take over the loan and repay the lender any outstanding funds.

RateSetter's provision fund has been hugely popular, and it is expected that safeguard will be equally popular.  The finer details of how the safeguard will be funded are still to be determined, and it should be stated that this is not a guarantee, but a further layer of protection for lenders.

Here is the full statement from Zopa:

Zopa today announced its new Safeguard tool to reward British savers, frustrated by low savings rates, with a better financial deal. UK savers will benefit from the new Zopa Safeguard which enables them to simply and safely earn market-leading returns of 5%.

Zopa hit a record £300m lent to UK consumers through its peer-to-peer lending platform and the total is growing daily. From the loans that have been approved since Zopa launched in May 2005, 45% of borrowers have been able to purchase a new car, 21% have been able to undertake home improvements and even 2% can cover their wedding expenses.

Zopa savers cut out banks and building societies and earn 5% on their savings by lending their money directly to other responsible people. Despite Zopa’s default rate being extremely low (0.8% on all money lent since launch), the Zopa Safeguard is now available to make up all the money owed from a borrower, including the interest, in the rare instance that they are unable to pay back their loan.

By rewarding people who are good with money, Zopa provides leading market rates for savers and borrowers. The new Zopa Safeguard tool will reassure savers that their money is protected and earning great returns.

Giles Andrews, CEO of Zopa said, “Zopa has lent over £300 million directly to UK consumers and has been rewarding customers that are good with their money by delivering great rates for the past eight years.  With the launch of the Zopa Safeguard we are going even further to ensure savers get secure and market leading rates of over 5%. We have already seen a 200% uplift in savers signing up to Zopa in 2013 and with the financial sector experiencing a challenging time, this signals an exciting  opportunity for us and future for the peer-to-peer industry.”

As the market leader in this sector, Zopa is spearheading the consumer choice that bypasses traditional financial institutions and provides a higher reward for being good with money. Adding Safeguard enables Zopa to further reward its customers and make the activity of lending-to-save more appealing and secure.