Peer to Business Lending
Alternative Finance Sector Report - November 2014
34
PEER TO BUSINESS LENDING
ALTERNATIVE FINANCE SECTOR REPORT
PUBLISHED
November 14
AUTHOR
Luke Jackson
Samantha Goins
There is the potential for firms to be
crowded out of the P2B sector – it may
be relatively easy to enter, but as the
sector grows it may become more
challenging for small firms to break
through and grow. They will not have
the reputation or resources to compete
with larger platforms. One way for new
platforms to improve their chances of
success is to offer a niche product. This
could include lending to only certain
types of businesses, focusing on a
local area, working with local councils
and employers or providing ongoing
business support and added services to
borrowers. It could be very hard for new
platforms to compete directly on returns!
Platforms could also look at offering
more sophisticated finance services, such
as ongoing savings style accounts (where
investors can pay in monthly) or risk rated
loan portfolios (which automatically
spread an investors capital across a
range of loans to meet their risk rating).
PLATFORM SUSPENSIONS
AND FAILURES
With the P2P sector still being relatively
immature there have been a limited
number of platform suspensions or
outright failures. As the sector continues
to grow this number could increase,
particularly if firms join the market
without the required experience and
backing, or if inappropriate loans are
accepted due to increased competition
for customers.
Be The Lender is the latest P2P platform
to announce that they have suspended
trading, the first platform to do so since
FCA regulations came into force in April.
A notice on their website states, “there
may be a balance owing” to investors
and they should login to their account
to withdraw any available balance.
At this stage, the reasons behind the
suspension are unclear and also whether
the company’s contingency fund contains
enough capital to wind-down the
company and return money to lenders.
Encash (previously YES-secure)
announced in March that it had decided
to cease its P2P lending business from 1st
April. This was a relatively small platform
and cited the new FCA regulations as
the reason behind their decision. The
company had agreed to buy lenders out
of any outstanding loans and ensure that
all customers were treated fairly.
OUTLOOK
AUTOMATED INVESTMENT
PLATFORMS
P2P and P2B platforms rely heavily
upon technology. This streamlines the
investment process, reduces the time it
takes to indentify and invest in a loan,
and overall keeps costs (particularly
overheads) to a minimum.
As this market develops, platforms will
look to utilise this technology in order to
further benefit users (both lenders and
borrowers). A key development in the
sector is likely to be the use of automated
investment systems.
To make the investment process even
simpler for investors who require a
hands-off investment, Assetz Capital
have implemented a new automated
investment option. This will allow users to
pre-set their risk parameters and target
returns, and the system will automatically
identify loans to meet their preferences.
Product categories will be defined by the
level and type of security taken over each
loan, for example the asset type taken
as security, loan to value (LTV) of the
security and the type of charge held over
the asset.
Funding Circle currently has in place an
Auto bid function, which automatically
places bids according to certain criteria
set by investors. Investors can set
the types of businesses they want to
lend to, the average rate they want to
receive and the maximum percentage
of their portfolio to be lent to any
single business. This technically allows
hands-off investors to build a diversified
portfolio of loans, but this also takes an
element of control away from investors
who may otherwise be able to secure
more favourable rates of return.
There is likely to be a large amount of
development in this space in the coming
months as platforms look to distinguish
themselves from their competitors and
offer ever more innovative investment
solutions.
ISAS, NISAS AND P2B
An ISA (individual savings account) is a
wrapper that allows individuals to hold
cash or invest in shares and unit trusts
with dividends, interest and capital gains
paid free of tax (for shares Income Tax
is paid at a flat rate of 10%). Investors
pay less tax which increases returns. An
individual can have a stocks and shares
ISA and a Cash ISA. The ISA allowance
sets the maximum that can be saved
within the ISA for each tax year. For
2014/15 the limit is £11,880, (£5,940*) can
be saved in cash.
*
Old ISA limit
