There has been some discussion on the P2P Independent Forum about peer-to-peer platforms having "skin in the game". This refers to peer-to-peer companies investing some of their own funds in each loan. Wellesley & Co became the first peer-to-peer company to lend their own funds to borrowers, but behind regular lenders in terms of priority in case of a default.
A number of lenders have stated that they are in favour of peer-to-peer platforms lending their own funds as it tried to ensure that the organisation's goals are aligned more closely with those of lenders. While peer-to-peer company typically receives a portion of its fee when the loan is made, it is lenders who are risking their capital if the loan goes bad. Other lenders are concerned that having "skin in the game" would put an additional capital requirement on the peer-to-peer companies which could limit growth and consequently longer term profitability.
There are additional issues of possible conflicts of interest and the blurring of the boundaries between borrower, P2P company and lender. There is also a regulatory concern as the P2P company would be then be "lending in the course of business". The rules of the P2P Finance Association allow peer-to-peer platforms to lend their own money, however we are not aware of any members currently doing this.
Members may lend their own money on their platform, provided that any conflict of interest is effectively managed
While peer-to-peer companies that do not have "skin in the game" are not directly risking their own funds, if their bad debt starts to exceed predictions then lenders would loose faith and lend elsewhere. The peer-to-peer platform YES-secure failed for this very reason. Therefore we would conclude that there is a strong indirect incentive to ensure that lending decisions are properly weighted.
After careful consideration we would be against forcing peer-to-peer companies to have "skin in the game" as we believe the negatives outweigh the positives. If companies wish to have "skin in the game" then we would not be against this either as it provides further reassurance to lenders but companies must address any conflicts of interest.
A report by the Centre for Economics and Business Research commissioned by Funding Circle has shown that the peer-to-peer platform has arranged loans to over 15,000 UK businesses over the last 6 years.
It has been six years since Funding Circle launched with a big idea - to revolutionise the way small businesses access finance. In that time, more than 15,000 UK businesses have borrowed over £1.4 billion from a wide range of investors including 50,000 people, local and national government, and a range of financial institutions such as pension funds. Globally, investors have lent $2.5 billion across the UK, US, Germany, Spain and the Netherlands.
The report also highlights that Funding Circle has helped create an estimated 40,000 jobs during this period. Furthermore a fifth of businesses borrowing through the peer-to-peer platform would not have been able to access finance otherwise.
We are particularly proud of the large number of jobs (~40,000) that have been created by lending through Funding Circle. Businesses are leaving banks to enjoy faster, and often lower cost finance - this report finds that whilst 77% of businesses initially shopped around for finance, an overwhelming 94% would come back to us first in future.
We are also expanding the small business finance market, with a fifth (21%) of borrowers telling us they would have been unable to access finance without Funding Circle. That, and the fact that we are able to direct significant funds to areas of the country like the North East where the traditional finance system has withdrawn through branch closures and restrictive lending policies, is hugely rewarding.
Peer-to-peer bridging lending company The BridgeCrowd have revamped their website and logo. The updated website has a greatly improved customer experience with the ability for lenders to view and interact with their loans. For lenders that have not yet signed-up to The BridgeCrowd yet, the P2P money website is running an exclusive cashback offer of £250 for new lenders who invest a minimum of £5000.
P2P secured bridging lender, the BridgeCrowd (www.thebridgecrowd.com), has recently updated its website and added a host of new features. This comes at a time where the company has seen remarkable growth over the past 18 months as it continues to occupy a strong space in the 2nd charge bridging arena.
The company offers a return of 1% per month to investors secured by loans over UK property. Investors choose their own loans to enter. To date over £60,000,000 in capital and interest has been returned successfully to investors.
The new features include a fully online view of the current live and historic loan book, a loan performance update system and an investor E-Wallet through which investors can invest capital into loans and manage their account and interest.
Louis Alexander, MD, commented that a key to the success of the BridgeCrowd has been the trust placed in it from the investors; “our investors have shown a great appetite and commitment to the company. We wanted to reward that loyalty by making the company more transparent and the best way to do this was to have a fully online loan book and an account that investors can manage online.”
The investors are also happy about the recent updates as well. Simon Thompson, an investor since the company was formed in 2013 commented that “the new features have made investing in the BridgeCrowd (www.thebridgecrowd.com) much simpler and easier to manage. The company has always shown great returns, and we will now look to increase our investments into the P2P loans offered throughout the platform.”
Luke Roughly, CTO, stated that one of the goals of the new features was to enable the company to scale up its lending by accepting more investors into its platform and giving them simple manageable tools to view and interact with their loans. Since the new website went live, we have seen more and more investors join the company and committing funds into the loans.
The BridgeCrowd occupies a broad space in the bridging industry offering loans up to 70% LTV on 1st charges and 68% on 2nd charges across residential owner occupied and BTL properties as well 60% LTV on land and commercial properties. Louis Alexander feels that the company have worked hard since the birth of this concept to deliver strong returns for investors based on secured bridging loans over property and that hard work has paid off with recognition and recommendations coming from various sectors of the financial community. With the new website and confidence from investors the BridgeCrowd, like Great Britain, is open for business!
The old logo is shown below.
RateSetter have announced in their July statement email sent to lenders that they plan to retire the 3 year market from October. Unlike some of their competitors this is the first time that RateSetter has actually retired a market. It is likely some lenders will be disappointed with this decision, but it is understandable given that the 3 year market comprise less than 5% of new lending. Lenders still have the choice of 5 year, 1 year or the rolling monthly market with competitive rates.
Here are the details sent to lenders within their July statement:
After years of good service, today we are announcing the retirement of the 3 Year market from 5th October 2016.
When RateSetter launched in 2010, investors could choose between the Rolling and the 3 Year markets. Over time we added the 1 Year and 5 Year markets and made other adjustments so that our range now caters to three distinct investor needs:
- Rolling investment with no early withdrawal fees
- 1 Year investment (with early withdrawal fees)
- Longer term investment (with early withdrawal fees)
Today, we recognise that the 3 Year market has been superseded by the 5 Year market as the choice for investors seeking a longer term investment.
RateSetter go into more detail on the reasons behind closing the 3 year market on their blog:
Why are you closing the 3 Year market?
The 3 Year market has become less popular ever since we introduced the 5 Year market and now accounts for less than 5 per cent of new investments. Both markets repay capital and interest monthly but investors vote with their wallets and are telling us that they prefer to lend in the 5 Year market.
In light of this, we think it is sensible to simplify our offering and have three markets. Investors who are happy investing over a longer term can invest in the 5 Year market; those that prefer to invest for shorter periods or prefer to have cheaper access can invest in the 1 Year or Rolling markets.
What does this mean for investors?
From 5 October 2016 the 3 Year market will be closed to new investment.
What if I have money in the 3 Year market?
If you have existing investments in the 3 Year market, you will continue to earn the same rate of interest on that money as your lending is repaid.
From 5 October 2016, any borrower repayments which are set to reinvest into the 3 Year market will be paid into your Holding Account by default, so that you can choose how to invest them.
If you would like to keep earning interest on that money, you can of course set repayments to be automatically invested in the Rolling, 1 Year or 5 Year markets by logging in to your RateSetter account and then selecting “Reinvestment” on the left hand menu.
Congratulations to Folk2Folk on their successful move to their new office in Corwall, demonstrating that peer-to-peer companies can be successful outside the capital.
Here is their full press release:
On 22nd July, Folk2Folk, a leading Peer-to-Peer lender based in Launceston, celebrated their move into a new head office with a summer party attended by MP for North Cornwall, Scott Mann, the Mayor of Launceston, Brian Hogan, and many leading local business owners from across the South West.
Folk2Folk have moved in to their new national headquarters, Number One, to help accommodate their rapidly expanding business which has enjoyed great success since launching in 2013. Folk2Folk have a number of offices across the South West and is rolling out further branches in market-towns across the country later this year and in 2017. In June 2016, the peer-to-peer lender passed the £100 million milestone of loans funded, and this move into the historic building in Launceston demonstrates the success of their business model and the level of demand for their local lending service.
Folk2Folk are one of the UKs largest peer-to-peer lenders with a unique business model which focuses on lending within local communities: bringing together investors seeking attractive and secured returns, and borrowers looking for access to affordable capital to develop and grow their business. More than 70% of Folk2Folk investors are repeat lenders, demonstrating the strength of Folk2Folk’s product. Folk2Folk is expanding its workforce and recently appointed a new Head of Business Development and Sales, to help widen the company’s reach and deepen its professional networks throughout the country.
Folk2Folk are the anchor tenant of the new premises, Number One, which previously served council offices and has sat unused for a number of years. The quality and flexibility of space at Number One will provide business space to new tenants and help support the South West’s growing business community.
Jane Dumeresque, Folk2Folk CEO said “We are thrilled to move into Number One, which provides excellent workspace for Folk2Folk’s head office base as we expand our business across the country. Folk2Folk has enjoyed great success since launching in 2013, and Number One provides the perfect environment to nurture growth for us and other businesses looking for quality office space.
Scott Mann, MP for North Cornwall, said: “It is a great pleasure to be here to mark the opening of a new centre for business in the South West and support the continued growth of a local success story, Folk2Folk. As a new business centre in Launceston, Number One offers flexible office space for vibrant growth businesses from the South West and beyond, providing an environment in which they can thrive.”