Loans go unfunded on Encash / YES-secure

April 9th, 2012
Encash

Following the recent post on the rebranding of YES-secure to Encash, we also reported on the comments from lenders concerning the reduction in maximum lending rates. Subsequently we published our analysis on the lending rates with the bad debt rates, and we concluded that lenders would be better off keeping their money in the bank.

There has been a lot of continuing activity on the YES-secure forum (which hasn't been rebranded as Encash).  The lender paulnkaty wrote:

Following reading the various points of view from both encash, borrowers and lenders and having given it a couple of days of thought i propose a new rate structure being imposed, which i feel fair to borrowers and lenders alike, and hope that encash will give it serious consideration and lenders will do the same to resolve the current situation before the business suffers serious long term damage from many loans going unfunded and lenders start to remove their funds elsewhere and they are lost to the platform, The following rates i propose would be on the agreement that they are then NOT changed again by encash, and from now the rates are allowed to fall naturally from lender competition as new lenders join, AND that encash will take a very serious look at the way the credit grades are assesed to get them reliable, YS/encash has appeared to made some significant progress recently on underwriting (time will show how well these improvements have been), the same needs to be done with the allocation of the credit grades.
My proposal for rates for each grade on this basis would be as follows =
A* 12 month @14% / A* 24 months @ 15% /A* 36 @ month 16% /A* 48 @ month 17% / A* 60 month @ 18%
A 12 month @ 16% / A 24 months @ 17% / A 36 month @18% / A 48 month @ 19% / A 60 [email protected] 20%
B 12 month @ 17% / B 24 month @18% / B 36 @ 19% / B 48 @20% / B [email protected] 21%
C 12 month @ 18% / C 24 month @ 19% / C 36 @ 20% / C 48 @21% / C 60 22%
D 12 month @ 21% / D 24 month @ 22% / D 36 @ 25% /D 48 @ 26% / D 60 28%
E 12 month @ 23% / E 24 [email protected] 25% / E 36 @ 27% / E [email protected] 30% E 60 @ 30%

These rates would i feel be the starting point which would be a fair and reasonable rate to risk ratio to START bids at, though the grade system would need to be improved to be reliable, with lenders competeing, and lenders being confident in underwriting improvements and better grade reliabilty i feel sure that there would be a natural gradual downward pressure on rates especially as new lenders joined. You see higher rates on D and E 48 and 60 months to encourage lending as often in the past these got little interest even on the previous rates.
I ASK ENCASH and other lenders and if they wish borrowers to give their opinions on this proposal to see if it would be supported as a suggestion, and if they feel it fair and reasonable, hopefully we can then find a common ground starting point for all. I look forward to peoples opinion.

The lender hor1997 replied:

This is a fair proposal, well balanced and discriminating correctly among grades and lenght of loan (somthing Yes-Secure had forgot completely). I would come back and lend my money if this structure is implemented.

The only loosing out at the moment are borrowers.
Nothwithstanding some 'strange new entries' among lenders (ys under cover?) I keep seeing auction after action failing to reach the minimum funding required... Almost a week has gone since the new branding and only 1 or so small loan was successfully completed (and even this one was with mixed funding, partly coming from the previous rate scheme...).

Just this morning/early afternoon, 6 consecutive auctions have fallen/will fall victim of this cash shortage due to the current excessive low rates...
(in order of expiry times.... id 4925, 4945, 4940, 4932, 4971, 4970)

There were a large number of lenders giving their support for this.  Surprisingly there has been absolutely no comment from Encash / YES-secure since the rebranding.  As stated above, loans are going unfunded as lenders appear to be voting with their feet.  Lets hope the Encash / YES-secure management start listening.

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RateSetter passes £20million in loans

April 8th, 2012
RateSetter

On Friday RateSetter passed the £20million mark in the total loans they have arranged.  RateSetter is currently growing at a rate in excess of £50,000 of new loans per day.

Lenders threaten strike action on Encash / YES-secure

April 4th, 2012
Encash

A day can sometimes be a long time in the world of P2P.  The fallout from the Encash / YES-secure reduction of lending rates is gathering pace.  Several lenders have stated on the YES-secure forum that they will no longer be offering funds in response.

The lender phltrnr wrote:

I have an apology to make to all you borrowers.
I've been a lender almost since this site's inception, helping dozens of people to the tune of thousands of pounds - despite a few defaulters owing me nearly £600!
Sadly, owing to the breathtaking arrogance of the Yes-secure / encash management in reducing the lending rates to the point where lending is no longer a viable proposition after tax and default losses are taken into consideration, I will have to cease lending at least for the moment.
I deeply regret this course of action but Y/S encash have forced my hand in this matter.
I sincerely hope that they will reconsider their actions and in the fullness of time I may recommence lending but it won't happen until they offer realistic rates.
I wish you well and hope you don't feel too let down; if you do, you know whom to blame.

The Encash / YES-secure management have not made any response to these points on the forum, which has also exacerbated the situation.  Lets have a look at the new maximum rates to understand the reasoning behind the concern from lenders.

Personal (P2P)
A* A B C D E
13.0% 14.0% 15.0% 16.0% 17.0% 18.0%

If we now compare these maximums with the bad debt statistics (correct as of 3rd April 2012) you will see that YES-secure are predicting between 1.5% and 11.0% annual bad debt.  The actual lifetime bad debts have varied wildly from the predictions.

Grade Term Annual
Bad Debt
Lifetime
Bad Debt
Predicted Predicted Actual
A* all 1.5% 3.0% 20.07%
A all 2.5% 4.0% 19.83%
B all 3.5% 6.0% 14.05%
C all 5.5% 8.0% 4.27%
D all 8.0% 12.0% 5.52%
E all 11.0% 25.0% 0.00%

Lets assume that bad debts will move towards estimates, so putting aside these large differences, lets calculate the returns a lender would expect to receive:

For the A* market, at a maximum 13% AER a 20% tax payer would expect to receive (13% - 0.9%) * (1 - 20%) - 1.5% = 8.18% and a 40% tax payer would expect to receive (13% - 0.9%) * (1 - 40%) - 1.5% = 5.76%.

For the E market, at a maximum 18% AER a 20% tax payer would expect to receive (18% - 0.9%) * (1 - 20%) - 11% = 2.68% and a 40% tax payer would expect to receive (18% - 0.9%) * (1 - 40%) - 11% = -0.74%.

So for the higher risk markets it would be better for a lender to put their money in a bank than lend at those rates.  Lets hope that Encash / YES-secure have a rethink as they need to decide if they want to continue to support the higher risk markets if they don't want the higher rates.

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ThinCats success story

April 4th, 2012
ThinCats

The kind folks at ThinCats have provided P2P Money with some detailed statistics on the loans they have made to date.  ThinCats isn't one of the companies that we mention a lot of at P2P Money as the £1000 minimum investment is probably oustide what most lenders (myself included) could afford.  However they now have facilitated £3.6million of loans (with a further 7 subject to contract) and have a growing share of the peer-to-business market.  Kevin Caley from ThinCats explained their rational.

You are correct in identifying that we are different because of our minimum £1,000 investment level but this was a deliberate policy because we are NOT trying to attract the 'retail' lender with a few hundred pounds to play with and who doesn't really understand what they are investing in.  We are targeting experienced investors with (ideally) at least £10k to invest who have the experience and time to read a detailed Information Pack and make their own investment decision.  For this reason we have no plans to lower our minimum bid level.  Not all of our lenders are 'High Net worth's'; indeed 14.6% have only invested £1k and 26% have invested £5k or less.

In addition ThinCats are targetting business-to-business lending and pension-to-business lending which have further advantages as Kevin explained.

No consumer credit licence is required.  In addition, a company or pension fund does not pay Income tax so the returns are more attractive.  A company can offset loan losses against Corporation Tax and a Pension fund gets at least 20% tax relief on loans which makes it a very attractive way to lend.

There are some interesting statistics.  The average lender has deposited just under £24,000 which is ten times the £2,400 that an average lender has deposited with Zopa, the leading peer-to-peer provider in the UK.  ThinCats currently have 421 lenders compared with around 78,000 lenders on Zopa (although the latter has been around since 2005 !).  The minimum invested by any lender on ThinCats is £1000 and the maximum has been £635,000.  Around 20% of these funds are from pensions.

ThinCats recently launched their ThinCat bonds through fund manager Innvotec, so they are certainly making new ground, travelling in a slightly different path to Funding Circle and the like, but this must surely be a good thing, and we look forward to reporting on their continuing success.

Encash is the new name for YES-secure

April 3rd, 2012
Encash
YES-secure

YES-secure has now rebranded itself as Encash.  The new logo andweb site design is certainly a major improvement.  The tagline "Safe and Social" has been replaced with "the social way", perhaps partially in admission that the bad debt rates were not as one would have hoped.  Despite the rebranding, the web address is still yes-secure.com and there is a new YES-secure logo at the bottom of the page so this is a bit confusing.  Companies House have no record of Encash but the record for YES-secure.com Limited is still present.  So perhaps the title should read "Is Encash the new name for YES-secure ?" as the page titles are "encash - YES-secure".

It seems that during the rebranding YES-secure - I mean Encash - I mean "Encash - YES-secure" - have tweaked their maximum lending rates again, and this has caused quite a stir on the YES-secure forum.  The lender moneybuddy wrote:

Why have encash imposed this rate reduction on current listings!
The borrowers currently listing knew the previous rates and were quite willing to borrow at 21/23/25/27.5...whatever. What a bonus for them.

Lenders are again being treated with such disdain - without lender funds there will be no 'encash' and lenders are not going to lend with such abysmal late payer and default rates, if they can't make it up with risk based interest rates. At the end of the day lenders, at minimum need to be relatively assured (with modest risk) of recouping their capital outlay.

I thought YS were doing quite well with the previous structure. Changing the name, and colour scheme does not warrant an imposed rate reduction and certainly does not in any way eradicate the previous bad debts. Lenders are still suffering. If rates are not paying then lenders will flee. At worst, I will get ~3 - 4.5% but with a £85K (i think) deposit guarantee from any high street bank.

The lender paulnkaty replied:

Well i have not been on this discussion page for a while, so was not aware of coming on encash just now, and although i was hal expecting some stupid stunt from chandra and team on rates when encash arrived i did not think they would be this stupid!! the current new levels are going to stop many lenders particularly given the risk to reward ratio here, I see phltnr (who is one of the lenders who has until now been one of the lenders making large offers on loans) has started withdrawing cash, many more will follow, I can only support this action as many lenders state it is the lenders competition which needs to be the force behind lower rates offered, I propose lenders stick together on this and leave some money on the site for now but stop bidding on anything until encash get realistic!! the lenders should start the lending strike from now and for as long as it takes

Further to my last comment these new rates simply wont make money for any lenders regardless of Grades. The grading system has been a complete joke for months, people checking their credit rating before applying have a good score from every credit agency but then get a D or E grade here, many i believe get ungraded with this current system leading to many worthy borrowers being rejected, HOW encash think these new rates will be profitable after tax at such low rates is beyond me, for there to be any chance of profit lenders need to have a rating system that can be trusted which the current one clearly cant be trusted, with C D and E grades returning less defaults than A* IF this is not changed within 7 days i withdraw 20% every seven days from my account, others should stick together here as well, I will use it to buy premium bonds or fix rate bonds and save the risk and hassle

The lender leodensian replied:

I agree 100% - this is the last straw! I will wait until the underwiters fail to verify the 3 current loan offers I've made then I'll withdraw all but the shillings and pence in my account and I'll continue to withdraw cash as my 53 loan slices (minus the already known bad debts) are repayed. I shall not be making any more loan offers until the previous rates are re-instated. These new rates are just not worth the risk. I sincerely hope "Encash" will reconsider this ill devised move otherwise I can see many more lenders pulling out.

Perhaps the ghosts of YES-secure past have not been fully exorcised.

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