14-06-2019, 01:10 PM
Update to Lenders - Sharing our Plans
Dear Lender,
We'd like to share some of our market observations and our plans with you.
Some observations about the P2P market
The P2P industry has had its fair share of news stories recently. It seems the market is rapidly becoming a tale of two halves. The larger platforms have been around long enough to have benefitted from the P2P early boom years where regulation was light, confidence was high and economic conditions right to accelerate borrowing at a time when banks were not lending.
Today, many of the larger platforms have refined their business models and credit underwriting, achieved scale, diversified their funding models and taken on institutional funding. This has enabled them to steady off the cyclical ebb and flow of retail demand and accelerate growth.
On the other hand, smaller platforms have not had the scale to weather issues that have affected the industry. Platform failures have affected confidence in the sector, notably with the collapse of Collateral last year and the recent collapse of Lendy. Should lenders have concerns over the sector as a whole or consider these as isolated instances of badly-run businesses?
There have been a number of articles discussing these issues recently in the trade and main press. The P2P Finance Association (P2PFA) has announced continued growth in the first quarter of 2019 with more than a quarter of a million consumers, fifty thousand businesses and over eight hundred development projects financed by over 150,000 lenders on its member platforms. We share the view that P2P still offers good opportunity for retail lenders and that lenders should not necessarily disregard the entire sector due the actions of a few.
That said, it is not an easy sector to navigate. Competition on the P2P space is now high; with an abundance of platforms offering lenders opportunities to invest in a range of loans or portfolios of loans at very different levels of risk and reward.
Where does MoneyThing fit into this?
To date, our proposition to lenders is to offer self-select, secured, higher-risk, higher-return loans. The loans we offer on our platform are usually at 12-13% interest, which in our case means the borrowers are paying typically between 15-18%. Many of the lenders that come to MT do so because they are attracted to the higher-risk and higher-return proposition.
There are a few other platforms that offer similar propositions to MT. This sub-sector of the market in particular is experiencing some difficulties in rising levels of defaults. This has contributed to a dip of confidence in the sector, which in turn caused a rush to attract more lenders by offering ever increasing levels of cashback and higher risk/ rate loans in order to secure the funding. This can’t be maintained.
8% is the new 12%
Having carried out a strategic review of our business recently we do not think it is sustainable to remain solely focused on this higher risk/return end of the spectrum. While we will continue to offer some higher-risk/return loans to lenders, the majority of the loans offered on our platform will now be in the 7-10% range.
We will continue to focus on secured SME lending and secured property bridging. Our borrower proposition is based around the fact that we don’t make purely automated decisions. We look at each deal on its own merits so we are focused on the under-served part of the SME market that requires a person to consider the whole business picture rather than taking a tick-box view. The pricing reflected on the platform will be an accurate reflection of the risk and return for each loan opportunity.
Over time, this will allow lenders to gain a better balance of risk within the MT platform and it will reduce the expected default rates. It will also allow us to offer more market-competitive rates to borrowers and it will broaden the range and volume of lending opportunities we can offer to lenders.
Changing our proposition will also allow us to attract a wider pool of lenders. To date, MT has been best suited to very savvy lenders that have the time to manage their accounts, time to read through and understand each loan proposition and know how to diversify their risk by spreading their lending across loans and platforms.
Moving down the risk scale will also make our proposition more appealing to a wider segment of lenders. Scaling the business in this way will also allow us to launch different products over time such as an auto-invest or account model to appeal to lenders who prefer a more hands-off approach to their lending.
The initial conversations we have had with our lenders has been positive and we look forward to growing with our lenders in to the next stage of our journey. If you would like to comment or provide feedback, please get in touch at support@moneything.com.
Kind regards,
The Things,
Dear Lender,
We'd like to share some of our market observations and our plans with you.
Some observations about the P2P market
The P2P industry has had its fair share of news stories recently. It seems the market is rapidly becoming a tale of two halves. The larger platforms have been around long enough to have benefitted from the P2P early boom years where regulation was light, confidence was high and economic conditions right to accelerate borrowing at a time when banks were not lending.
Today, many of the larger platforms have refined their business models and credit underwriting, achieved scale, diversified their funding models and taken on institutional funding. This has enabled them to steady off the cyclical ebb and flow of retail demand and accelerate growth.
On the other hand, smaller platforms have not had the scale to weather issues that have affected the industry. Platform failures have affected confidence in the sector, notably with the collapse of Collateral last year and the recent collapse of Lendy. Should lenders have concerns over the sector as a whole or consider these as isolated instances of badly-run businesses?
There have been a number of articles discussing these issues recently in the trade and main press. The P2P Finance Association (P2PFA) has announced continued growth in the first quarter of 2019 with more than a quarter of a million consumers, fifty thousand businesses and over eight hundred development projects financed by over 150,000 lenders on its member platforms. We share the view that P2P still offers good opportunity for retail lenders and that lenders should not necessarily disregard the entire sector due the actions of a few.
That said, it is not an easy sector to navigate. Competition on the P2P space is now high; with an abundance of platforms offering lenders opportunities to invest in a range of loans or portfolios of loans at very different levels of risk and reward.
Where does MoneyThing fit into this?
To date, our proposition to lenders is to offer self-select, secured, higher-risk, higher-return loans. The loans we offer on our platform are usually at 12-13% interest, which in our case means the borrowers are paying typically between 15-18%. Many of the lenders that come to MT do so because they are attracted to the higher-risk and higher-return proposition.
There are a few other platforms that offer similar propositions to MT. This sub-sector of the market in particular is experiencing some difficulties in rising levels of defaults. This has contributed to a dip of confidence in the sector, which in turn caused a rush to attract more lenders by offering ever increasing levels of cashback and higher risk/ rate loans in order to secure the funding. This can’t be maintained.
8% is the new 12%
Having carried out a strategic review of our business recently we do not think it is sustainable to remain solely focused on this higher risk/return end of the spectrum. While we will continue to offer some higher-risk/return loans to lenders, the majority of the loans offered on our platform will now be in the 7-10% range.
We will continue to focus on secured SME lending and secured property bridging. Our borrower proposition is based around the fact that we don’t make purely automated decisions. We look at each deal on its own merits so we are focused on the under-served part of the SME market that requires a person to consider the whole business picture rather than taking a tick-box view. The pricing reflected on the platform will be an accurate reflection of the risk and return for each loan opportunity.
Over time, this will allow lenders to gain a better balance of risk within the MT platform and it will reduce the expected default rates. It will also allow us to offer more market-competitive rates to borrowers and it will broaden the range and volume of lending opportunities we can offer to lenders.
Changing our proposition will also allow us to attract a wider pool of lenders. To date, MT has been best suited to very savvy lenders that have the time to manage their accounts, time to read through and understand each loan proposition and know how to diversify their risk by spreading their lending across loans and platforms.
Moving down the risk scale will also make our proposition more appealing to a wider segment of lenders. Scaling the business in this way will also allow us to launch different products over time such as an auto-invest or account model to appeal to lenders who prefer a more hands-off approach to their lending.
The initial conversations we have had with our lenders has been positive and we look forward to growing with our lenders in to the next stage of our journey. If you would like to comment or provide feedback, please get in touch at support@moneything.com.
Kind regards,
The Things,