During LendIt Europe Cormac Leech, Principle at Victory Park Capital Advisors, suggested that peer-to-peer lending companies should take advantage of cross selling which is an untapped source of revenue.
Once banks have acquired customers they will typically try to cross sell loans, credit cards, insurance and other financial products throughout their relationship. Cormac suggested that peer-to-peer platforms could go further and cross sell holidays and tech goods and share some of the revenue with the platform's customers.
On some levels this makes financial sense, but when I heard this I had to shake my head. There may be some merit in cross selling other financial products on a P2P platform, but I would argue that unless this helps grow the brand and deepen the customer relationship it may at best detract from the platform's primary aim - which is to match lenders and borrowers - and at worst lose customers. Would you buy a holiday from your insurance company? If not, how would you feel about your insurance company offering to sell you a holiday?
Some customers have migrated to peer-to-peer platforms to get away from some of the traditional spamming practices that some companies operate. If peer-to-peer companies were to adopt some of these cross selling practices then some customers may simply go elsewhere.
Lending Works has become the first major peer-t0-peer lending platform and P2P Finance Association member to obtain full authorisation from the Financial Conduct Authority. LendingWorks have also announced that their ISA will be launched in January, confirming the estimate provided by Nick Harding at LendIt Europe.
Here is the email sent to LendingWorks members:
We're fully authorised by the FCA
We are thrilled to announce that we've today received official confirmation from the Financial Conduct Authority (FCA) of our full authorisation as a financial services provider. This is a momentous occasion for Lending Works, and also means we are the first of the peer-to-peer lending platforms operating under interim permission to receive this approval.
It marks the end of a thorough, 12-month review in which our processes, systems, policies, financials and levels of compliance and risk management have undergone intense scrutiny from the UK's primary financial services regulator, and this green light from the FCA represents the ultimate stamp of approval. We hope that this news will further underscore your confidence in us, and all that we stand for.
Our ISA is coming soon
With this FCA approval in hand, it now paves the way for us to apply to become an ISA Manager with HM Revenue & Customs. Once this formality is complete, we'll be eligible to deliver the Lending Works Individual Savings Account (ISA), a product we plan to launch in January. We are waiting until January to launch our ISA for a number of reasons, namely: the expected waiting period for obtaining ISA Manager approval, the fact that we have other major releases planned for the next couple of months, avoiding launching before or during the Christmas break, and to align the launch with the January-to-April 'ISA season'.
New branding, website and user dashboard
In a few weeks' time, we will launch new branding that we hope is befitting of our position as an innovative financial services technology firm. In addition, we will launch an easy to navigate, simple-yet-informative new website and intuitive new user dashboard. We will introduce you to the new brand, website, logo and lender dashboard closer to the time of launch, but we are confident it will further enhance your customer experience.
Finally, we have also got several new major partnerships going live soon too. These partnerships will bring more and more high-quality borrowers to our platform, which in turn will benefit you, our lenders.
But for now, we hope you will share in our delight at having made this significant step up with the FCA - a launchpad we believe will drive us towards even bigger and better things.
If you have any questions regarding the above, or any other matters, please do not hesitate to get in touch with us.
All the best,
Co-founder & Chief Executive Officer
Saving Stream has confirmed that it will be offering lower lending rates from Monday 17th October. Some loans will still be offered at 12%, but others will be below 12%. The team at Saving Stream confirmed at LendIt Europe that they were considering this approach as supply as far exceeding demand at 12%.
Here is the email send to Saving Stream customers:
Saving Stream has been offering amongst the best risk-adjusted-returns in the market to peer-to-peer investors for 4 years.
In that time, over 11,000 people have invested through Saving Stream and been paid a total of £13m in interest. To achieve that we have arranged £200m of lending, of which £70m has been returned to investors and £130m is still accruing interest. We lent over £25m in September alone and still did not satisfy the demand of our investors.
But despite that success we are always looking to improve our service based on customer feedback. One of the things investors say to us is that they want us to offer a greater number and variety of loans, giving investors more choice and more opportunities to put their money to work.
As you can see from the graph above, the requested amount for loans significantly outweighs the allocated amount that investors are receiving. We now want to bring demand and supply closer together, as fairly as possible.
In order to increase the supply of high quality loans, we intend to begin offering investors the chance to invest in lower risk loans that will pay a lower monthly rate. This will allow us to offer lower cost finance to borrowers, which should feedback to a higher volume of even higher quality loan flow.
During September alone there was an opportunity to lend at least another £25m but because our funds were too expensive we did not win the business. A higher volume of loan flow will also mean that investors are more likely to achieve their preferred allocation on the loan rather than being scaled back, which we know can sometimes be frustrating.
By investing in a wider spread of high quality loans and being able to keep their money at work more of the time, investors will find it far easier to build a sensible diversified portfolio of loans over time and probably for a similar net return as before.
We intend to start implementing this new policy from Monday 17th of October on all new pipeline loans. Please ensure your default prefunding level is set accordingly, to take into account that not all new loans will be offered at 12%.
The Saving Stream Team
Following an eventful day 1 of LendIt Europe 2016, the second day stated with opening remarks by Peter Renton, CEO and Co-Founder of LendIt. Peter stated that one of the big standouts of the industry is the passion. How true.
The state of marketplace lending in the USA was discussed. As mentioned in day 1 marketplace lending in the USA has experiences a few difficulties over the last year. Goldman Sachs is rumoured to be launching a marketplace lending platform within the next month or so and the lower cost of capital could be advantageous.
Lord Turner made an eagerly awaited appearance at LendIt. He may have expected a sceptical audience after comments were published on the BBC that losses on peer-to-peer would make “bankers look like absolute lending geniuses”. Lord Turner stated that his comments had been taken out of context at the end of an interview, however he had looked more closely into peer-to-peer lending. Lord Turner concluded that P2P platforms can perform lending credit assessments in some cases better than, or at least as well as banks. As a former regulator he stated that P2P platforms should “keep it simple and keep it transparent”. The full presentation is below.
Jaidev Janardana, CEO of Zopa, stated that 2016 had been a turbulent year for the industry, but that transparency has been an important weapon to gain the trust of consumers and regulators. He also stated that consumers are still being underserved by the banks.
The Global Alternative Finance Study by Cambridge/KPMG showed that alternative finance varies significantly by country, with the USA, China and the UK leading the way per capita.
Rhydian Lewis, CEO of RateSetter, gave an interesting presentation on the costs of certainty. He stated that the costs in maintaining the guarantee on savings is actually very wasteful. In order to guarantee savings, a certain amount of interest is forgone in order to fund the various mechanisms that will attempt to guarantee the money. Over a 50 year cycle the amount of interest forgone when compounded would be more than the capital itself.
A discussion on preparing for a downturn highlighted that Zopa’s safeguard fund would not protect lenders during a recession. Funding Circle’s stress tests have shown that bad debts would be 1.6 times those currently during a recession.
All of the videos are now available on the LendIt Europe website. I can't wait for LendIt Europe 2017.
The Peer-to-Peer Finance Association has published an independent assessment of the economics of peer-to-peer lending sector undertaken by economic consulting firm Oxera.
The study was commissioned to inform debate through the provision of an in-depth interrogation of how P2P lending works and associated public policy issues. The evidence-based report analyses the risks, costs and benefits of peer-to-peer lending and provides an objective account of how P2P business models work. The study focused on the eight platforms which comprise the membership of the P2PFA.
The evidence provided in the study shows that:
- peer-to-peer lending has created additional competition and choice in the market for loans and investment;
- peer-to-peer lending provides a new option for retail investors, opening up access to risk-and-return from an asset class of consumer and business loans with net returns of between four and eight per cent;
- platforms conduct credit-risk assessments using industry best practice and deliver outcomes consistent with those of traditional lenders;
- platforms provide levels of transparency which empower investors to assess performance against expectations;
- peer-to-peer lending does not create systemic risk, and platforms are well-placed to weather a downturn in the credit cycle – borrower defaults would need to increase at least threefold to reduce average interest rates to investors below zero; and
- the current regulatory regime is proportionate and targeted, though opportunities to strengthen the regime exist in some areas.
The study also found that most retail investors have a good understanding of the risks of peer-to-peer lending, including capital and liquidity risk, and the importance of diversification. However, the high levels of transparency provided give investors access to a significant amount of information to process. Therefore, more could be done to ensure effective communication of this information further to improve investor understanding.
The Chair of the Peer-to-Peer Finance Association, Christine Farnish said: ‘This landmark study into the economics of P2P lending provides important insight into the state of the market in the United Kingdom, addressing directly some concerns which have been expressed about the understanding of investors, the business models of platforms and the regulatory framework in which this business is transacted. The Report provides clear evidence of the robustness and resilience of the sector and also addresses directly a number of assertions that have been made about the riskiness of P2P lending. We hope it provides a useful input to policy-makers and regulators’.
She continued: ‘the Report emphasises the crucial importance of platforms ensuring that retail investors are well-informed – particularly as the number of those participating expands – as well as making sure that platforms themselves undertake sound credit-risk management and adhere to high standards of business conduct. Whilst P2PFA member platforms are required to commit to unrivalled levels of transparency and robust operating principles, it is clear that the regulatory regime has scope for further development so as to ensure that exemplary levels of confidence can be maintained for this increasingly significant part of the alternative finance landscape’.
Reinder van Dijk, Partner from Oxera, added: ‘P2P lending has been a real innovation in the market for credit, bringing benefits to both borrowers and investors. The existing regulatory regime in the UK has been successful in enabling the P2P market to develop to where it is today. As the sector continues to mature, regulation will need to evolve alongside it to ensure consumers continue to achieve the benefits made possible by this new model’.