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Skin in the game
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.