At the end of the first day of LendIt Europe there has been a huge amount of information to go through. We have been actively covering it on Twitter. The conference is around 15% larger than last year with over 900 delegates. Interestingly 10% of those attendees identify themselves as working for banks.
The headline speaker was Samir Desai, Co-Founder and CEO of Funding Circle, which announced it has a loan book worth $2.5billion from loans arranged within the UK, Europe and the USA.
Samir stated that we are now entering a golden age for peer-to-peer lending. Funding Circle has performed stress tests and lenders could expect a 2% reduction in lending rates during a "stressed environment", taking the average from 7% to 5%. Funding Circle are also part of a unique group of peer-to-peer companies that have originated more than $1billion in loans, and this includes Zopa and RateSetter from the UK.
The P2P Finance Association have commissioned a Oxera to perform an independent economic assessment of P2P lending in the UK which was discussed in detail. Default rates have been consistent, or better than, expectations at time of loan origination for the majority of peer-to-peer companies.
Zopa has been the only peer-to-peer company to go through a credit cycle and the analysis of the data showed that default rates during a recession rose in line with expectations of other lenders.
Chris Woolard of the FCA addressed some of the concerns around the delays in platforms obtaining full authorisation. The FCA was being diligent to ensure that there was not "an expectations gap between lenders and lending platforms". It was stated that these authorisations should be addressed "soon". The FCA was robust in stating that peer-to-peer lending platforms need to ensure that they had the correct permissions or that they would be breaking the law.
Christine Farnish, chair of the P2P Finance Association, stated that the only remaining gate to launch of Innovative Finance ISAs is platforms obtaining full authorisation from the FCA. Several dates were suggested between January and March 2017. It is also likely that platforms authorisation would be given in batches to prevent one platform gaining an unfair advantage over another.
There was several mentions of sources of funding and Christine Farnish stated that a mix of retail, institutional and government is a strength for the P2P lending industry. RateSetter stated that their loans are 95% funded by retail lenders, for Zopa and Funding Circle this figure would be between 30% and 40%. LendingWorks stated that around 50% of their loans are retail funded.
Nomenclature was also raised several times. The FCA refers to peer-to-peer lending as "debt based crowd funding" whereas the industry believes this terminology is confusing. Christine Farnish and Giles Andrews stated it should be "peer-to-peer lending" and whereas others believed it should be "online lending" or "marketplace lending".
Platform fraud was highlighted by Cormac Leech as one of the biggest risks, referring to TrustBuddy, and also stated that the industry has been affected by fallouts from issues in China and Lending Club in the USA.
There were several mentions of Brexit and the affect has had on peer-to-peer lending. Some companies stated that they have reduced their maximum loan to value, but others have said that the reduction in the Bank of England base rate has increased retail lending funds.
There have been a few press released including Welendus which is a new short-term peer-to-peer company aiming to launch in December, competing with the well-known payday lenders. Borrowing rates of 113% APR would be a tenth of the competition and lending rates of up to 15% AER with bonuses and protected capital would be offered. Watch this space for further details.
Continue to day 2 of LendIt Europe 2016.
As RateSetter celebrates its 6th birthday this month we take a look at the company over the last years. RateSetter was by our reakoning the 8th peer-to-peer company to launch in the UK, following Zopa and Funding Circle, and has one of the most recognisable brands within the industry. RateSetter pioneered the provision fund which a larger number of P2P companies have subsequently adopted, including Zopa. RateSetter, along with Zopa and Funding Circle form part of the original "big 3" P2P companies, and was a founding member of the P2P Finance Association.
The provision fund that RateSetter pioneered was revolutionary. The fund would step in and repay the lender if - for any reason - the borrower did not repay. The fund also addressed the issue at the time where lenders could not offset bad debts against interest. The provision fund is not a guarantee and peer-to-peer lending falls outside of the Financial Services Compensation Scheme (FSCS). However, to date lenders have not lost any money lending through RateSetter. The provision fund is funded by a difference in the borrowing and lending rates. Currently the provision fund is valued at over £16million with a future income of £6million, and expected future claims of £17million. Bad debts are currently predicted to be less than 2.7% over the lifetime of a loan, which is an increase on the original estimate of less than 1.4% back in 2010.
RateSetter, to their credit, are also one of the few peer-to-peer companies that have maintained their lending model throughout their lifetime. This provides comparative data over a relatively long period of time.
RateSetter's lending rates have fallen from peak in Q1 2011 to a low in Q3 2013, and have slowly risen until Q2 2015, and are now slowly falling, but current lending rates are still competitive. The graph highlights the increasing volatility of the 3 year fixed market which is due to be retired this month. This volatility is likely to have been due to limited funds within this market as lenders migrated to the 5 year market.
RateSetter's popularity with both experienced and novice lenders has not changed over the last 6 years, and RateSetter have maintained their #3 position both in terms of loans arranged and loan book value and are currently arranging £50million of new loans per month. New lenders can still sign-up to RateSetter and earn £100 cashback when they lend £1000 or more through the P2P money cashback site.
Funding Circle announced that it had broken the £1.5billion lending mark, the second UK peer-to-peer company to reach this after Zopa.
Stop press. We’ve hit £1.5 billion lent to British businesses!
It was after 5 years, 4 months and 10 days we celebrated hitting £1 billion lent, and just 9 months later we’re at £1.5 billion! Thank you for your continued support.
This is actually a significant achievement and shows the rate at wish Funding Circle is growing. Even though Zopa has arranged more loans, Funding Circle have a larger loan book.
Zopa have announced that they will be reducing lending rates by 0.2% from 8th September following the reduction in the Band of England base rate.
Here is the email sent to Zopa lenders:
We're writing to let you know about upcoming changes to headline rates for Access, Classic and Plus. As of September 8th, 2016 all lender rates will decrease by 0.2%:
- Access will reduce to 3.3% from 3.5%
- Classic will reduce to 4.1% from 4.3%
- Plus will reduce to 6.5% from 6.7%
Any money in the queue from September 8th will be lent out at these new rates, so you have time to manage your lending settings if you wish. We will be updating our website later this week to reflect the new rates.
As you will be aware, the Bank of England recently cut interest rates to a record low of 0.25%. While we aren't as closely tied to the interest rate as high street banks, it has affected us in a couple of ways:
Headline rates for borrowers across the board are at a record low. We have seen 0.1-0.3% reduction in headline rates from other loan providers across key loan categories since the interest rate cut. It's important that we stay competitive while maintaining our high standard of borrower.
Banks have already reduced their rates dramatically: in many cases by more than 0.25%. This lack of competitiveness for investors from the banks has led to a surge in new lenders at Zopa; meaning slower lending speeds and queues of, on average, 10 days in Classic. This is something we closely monitor and manage. As we are a marketplace it's essential that we maintain the balance between borrowing and lending.
As with all marketplace lenders, when you lend your money your capital is at risk and is not protected by FSCS. Our risk statement has all the details.
As ever, if you have any questions our Customer Services team are on hand to answer them.
The original concept of peer-to-peer lending allowed lenders to set their own interest rate, but a growing number of larger peer-to-peer companies now set lending rates (with the noteable exception of RateSetter who still allow lenders the ability to set their own rates).
There are numerous metrics to gauge the growing success or falling favour of a peer-to-peer platform, including loans arranged, current loan book value, reviews or industry awards. How often a company is mentioned in the press or discussed can also be an early indicator. The P2P Independent Forum has discussion boards for all of the major peer-to-peer companies in the UK and Europe and it has been good at predicting the rise of new companies, as well as highlighting often overlooked issues.