Peer to Peer platform failure

aroominyork

Threads about p2p often mention the risk of platform failure and that p2p has not been tested during a recession. I’d like to discuss what would cause platforms to fail.

It seems to me that increased numbers of defaulted loans do not by themselves affect platforms' survival – it is investors who feel that pain (unless you have a situation like Ratesetter’s wholesale car loans where the company’s balance sheet is taking the hit).

The risk to platforms’ survival seems to be if people stop investing in p2p and the platforms’ revenues tumble. We then look at the strength of their balance sheets, their profitability (if they are starting from a profitable position), their ability to raise more finance and to restructure the business. Would p2p suddenly be seen as a concept that only works when times are good or would consolidation in the sector leave some strong and sustainable survivors?

And what would make investors continue investing? Higher rates of return for the risk which has become apparent, a provision fund which has proven itself (perhaps albeit with haircuts)?

Thoughts?

Albermarle

Many of these platforms have backers ( Venture Capital) with deep pockets and prepared I presume to live with losses , so it will depend on them to some extent .
Also on many platforms the majority of the lending money is from institutions rather than the public. So again I presume they will only tolerate loans going sour for so long before they lose interest. In which case the business model of the platform is 'under pressure'
So each platform is evolving differently , some are not really even pure P2P anymore.

badger09

ZOPA was tested during the last recession and survived as a platform, although it was very different in the early days.

I was an early adopter and didn't suffer too badly, but stopped lending in July 2009 when, for me, the risk outweighed the potential returns.

I do recall some platforms folding. I remember this one well as there was a lot of speculation about its methods from ZOPA lenders.

https://www.telegraph.co.uk/finance/personalfinance/savings/10897313/First-peer-to-peer-firm-fails-but-savers-are-still-repaid.html

itwasntme001

P2P platform risk is probably not looked into enough as it should be by investors. There is a very real risk a platform can fail. Problem is it is very difficult to assess these risks not least because most platforms are not public (not that investors would bother checking in the first place!). My view is the risk is severely unstated. You should assume most your money will be gone in a platform failure due to the administrators taking a huge chunk. You will not know which platform will go bust until it is way too late to get your money out. In my view stay clear of P2P, it really is not worth it. I had £50k invested at one point and I started exiting 1.5 years ago. I now have small bits invested due to bad debt. Overall i have made money but nothing compared to what is advertised and whilst above savings account rates, it certainly has not been worth the risk (and time).

masonic

A couple of platforms have failed during the "good times", in both cases it was due to improper conduct that they got away with under the FCA's "light touch" regulation regime. Until P2P is properly regulated, punters can never really know what is going on beneath the surface.

itwasntme001

masonic wrote: »

A couple of platforms have failed during the "good times", in both cases it was due to improper conduct that they got away with under the FCA's "light touch" regulation regime. Until P2P is properly regulated, punters can never really know what is going on beneath the surface.

There is a "wrong-way" nature to the business of P2P - as default rates spike up, lending criteria gets tighter and therefore less supply of loans which reduces future expected revenues for the platforms. Also existing loans that pay annual "service" fee to the platform dries up due to defaults. All this increases likelihood of platform failures.


Tighter regulations will only do so much and is not without cost - this cost will be payable by the platforms further eating into profits. Any non-public platform will always have P2P investors guessing whether they will remain viable as a business. It is crazy to think i even had so much exposure in the first place but i am so glad i decided to exit 1.5 years ago.


Once a platform goes, say goodbye to your money. It is very likely that most of it will be gone to administrator fees. And even then it could take years to get any of it back. It just does not seem worth it at all given all the risks. When bad things happen in P2P, they are really bad.



There are rumors of problems at funding circle. Could that be the next platform failure?

masonic

itwasntme001 wrote: »

Tighter regulations will only do so much and is not without cost - this cost will be payable by the platforms further eating into profits. Any non-public platform will always have P2P investors guessing whether they will remain viable as a business. It is crazy to think i even had so much exposure in the first place but i am so glad i decided to exit 1.5 years ago.

Most likely tighter regulation would bring returns down to a similar level as fixed rate savings accounts - because P2P properly done won't generate interest much above that level after costs and bad debt.

Once a platform goes, say goodbye to your money. It is very likely that most of it will be gone to administrator fees. And even then it could take years to get any of it back. It just does not seem worth it at all given all the risks. When bad things happen in P2P, they are really bad.

I've got personal experience of this. Over a year and a half later, not a single penny distributed to lenders. Though I have individual loans elsewhere that have been in default much longer than this.

There are rumors of problems at funding circle. Could that be the next platform failure?

My money is on Funding Secure. But there are a few in the running.

badger09

masonic wrote: »

Most likely tighter regulation would bring returns down to a similar level as fixed rate savings accounts - because P2P properly done won't generate interest much above that level after costs and bad debt.


I've got personal experience of this. Over a year and a half later, not a single penny distributed to lenders. Though I have individual loans elsewhere that have been in default much longer than this.


My money is on Funding Secure. But there are a few in the running.

I must admit to being amused by the choice of names of some of the P2P platforms - not least Yes Secure and Funding Secure. As if the inclusion of 'secure' makes it so:cool:

Once had a conversation with Giles Andrews CEO & a founder of ZOPA (in 2007 or 2008 IIRC) about the choice of name ZOPA (Zone Of Possible Agreement), which made more sense in the early days when lenders had much more choice in terms of loan length and risk category.

masonic

badger09 wrote: »

I must admit to being amused by the choice of names of some of the P2P platforms - not least Yes Secure and Funding Secure. As if the inclusion of 'secure' makes it so:cool:

The use of 'secure' in the case of Funding Secure was presumably to denote that all of their loans were secured on assets. Except they then decided to make one or two unsecured loans, and a series of loans that were secured on assets that either didn't exist, weren't owned by the borrower, or were simply worthless.

Still, the prize for most reassuring name must go to SavingStream. The FCA didn't like that one so the company had to rebrand as 'Lendy', which was the name it traded as for a while before being subject to further FCA enforcement action and going into administration.

edgex

aroominyork wrote: »

Threads about p2p often mention the risk of platform failure and that p2p has not been tested during a recession. I’d like to discuss what would cause platforms to fail.

Where do the platform revenues come from?

Bravepants

Lendy has recently gone into administration. I have about £700 stuck in there.


And those loans are mostly asset backed property loans. Lendy had recently won an incompetenecy claim against a valuer for one of its loans. P2P is all a bit hit and miss for my liking.