Peer2Peer Finance News February 2023

blogger

P2P platforms reaffirm commitment to retail investors

A SWATHE of peer-topeer lending platforms have reaffirmed their commitment to retail investors, following the recent departure of two major players from the space.

Assetz Capital, which was the biggest P2P platform, announced its plans to wind down its retail loan book in December, blaming rising bank savings rates for making its product uncompetitive.

ArchOver exited the P2P market last month, citing costs,

regulation and economic volatility as the factors behind its decision.

But there are plenty of platforms who are

still cheerleading the role that retail investors can play in P2P.

Louis Schwartz, chief executive of Loanpad,

said that his platform “is fully focused on retail investors, and we do not have any plans to change that.”

His comments were echoed by Mike Bristow, chief executive of CrowdProperty, who said that his platform is “absolutely committed” to retail investors, and George Huntley of The Money Platform who said "experienced retail investors are an important part of our investor mix".

“There is still a market for retail investors;

FCA chastises firms on risk warnings

THE CITY watchdog has cracked down on platforms that were not complying with the new risk warning rules, Peer2Peer Finance News understands.

The Financial Conduct Authority (FCA) wrote to trade bodies on 22 December, saying they had been reviewing compliance with the new risk warning rules

which came into effect on 1 December and that so far compliance rates had been poor.

The regulator then contacted firms directly where they thought their risk warnings did not meet standards, requesting immediate action.

Peer2Peer Finance News knows of one platform which

received an email from the FCA on 11 January, requesting a couple of changes which the platform made promptly.

The FCA declined to comment.

The new risk warnings are part of the FCA’s stricter rules on the marketing of highrisk investments. The regulator created a

bespoke risk warning for P2P following industry feedback, updating the wording to say that investors could lose money, rather than lose all of their money.

The FCA said it will look at whether any further differentiation of the risk warning is needed in its second phase of work planned for next year.

Delving

Lars Wrobbel gives his top picks

Published by Royal Crescent Publishing

124 City Road, London, EC1V 2NX info@royalcrescentpublishing.co.uk

EDITORIAL

Suzie Neuwirth

Editor-in-Chief suzie@p2pfinancenews.co.uk

Kathryn Gaw Contributing Editor kathryn@p2pfinancenews.co.uk

Marc Shoffman Senior Reporter marc@p2pfinancenews.co.uk

Hannah Gannage-Stewart Reporter

PRODUCTION

Tim Parker Art Director

COMMERCIAL

Tehmeena Khan Sales and Marketing Manager tehmeena@p2pfinancenews.co.uk

SUBSCRIPTIONS AND DISTRIBUTION

tehmeena@p2pfinancenews.co.uk

Find our website at www.p2pfinancenews.co.uk

Printed by 4-Print Limited ©No part of this publication may be reproduced without written permission from the publishers.

Peer2Peer Finance News has been prepared solely for informational purposes, and is not a solicitation of an offer to buy or sell any peer-to-peer finance product, or any other security, product, service or investment. This publication does not purport to contain all relevant information which you may need to take into account before making a decision on any finance or investment matter. The opinions expressed in this publication do not constitute investment advice and independent advice should be sought where appropriate. Neither the information in this publication, nor any opinion contained in this publication constitutes a solicitation or offer to provide any investment advice or service.

This issue of Peer2Peer Finance News is focused on retail investors and their future within the peer-to-peer lending industry.

To some stakeholders, that very question is fraught with difficulty, as surely there is no P2P without retail investors?

But the introduction of new regulations and the recent departure of two platforms from the retail space has reignited the debate.

The increasing involvement of institutional investors in P2P is certainly not a new concept.

Nor is regulation, but the latest swathe of rules – pertaining to the marketing of high-risk investments – seems to have ruffled feathers like never before.

Interestingly, some platforms are happy to comply with the new rules and are still cheerleading the retail investor (perhaps alongside institutional funders), while others are adamant that it is now too onerous a compliance burden – and too costly – to keep themselves open to retail.

The dichotomy intrigues me. Does this mean that some businesses are simply better suited to P2P due to their commercial strategy or management expertise? Or are there other factors at play?

With the rest of the new financial promotions rules set to come into effect this month, I suspect all will be revealed…

SUZIE NEUWIRTH EDITOR-IN-CHIEF

We hope you’re enjoying the latest edition of Peer2Peer Finance News! We have now moved to a paid-for subscription model. If you would like to continue reading the magazine, please go to www.p2pfinancenews. co.uk/subscribe/ to find out about subscription options.

from top of page 1

while some banks have started to offer higher deposit rates of around four per cent plus, some are fixed for one year and others you have to have a minimum amount invested,” said Narinder Khattoare, chief executive of Kuflink.

“P2P offers a higher rate (without FSCS coverage) but there is a degree of flexibility for the retail investor and options available unlike the banks – you can also pick and choose where your money goes. I think there is definitely space for retail in P2P and the key things are for investors to do due diligence on the businesses that are performing well and have a good record with great reviews.

“Everyone wants inflation-beating returns which aren’t achievable – if you’re savvy you can make your money go further for you if you make the time to compare what is available.”

Meanwhile, Brian Bartaby, chief executive of Proplend, highlights the fact that retail investors have been at the core of P2P since the sector’s fruition.

“The P2P concept was born to enable a loan to be split into multiple tokens and then funded

by multiple individual lenders in return for regular monthly interest, and nothing has changed,” he said.

“Proplend has a loyal contingent of individual lenders who trust us with their hard-earned money. They continue to fund loans as they come to the platform and we are highly cognisant that it’s their money and not ours.

“As we have previously mentioned to our lenders, we will continue to welcome and support individual lenders but that is not to say at some point we may onboard institutional money, as long as it doesn’t conflict with our individual lenders.”

A Sourced Capital spokesperson similarly said his firm remains “totally committed to providing opportunities for retail investors”, who remain their primary source of loan funding.

“The move by other lenders to purely institutional funding has created opportunities for those operators remaining in the P2P sector that are correctly positioned to be able to thrive in the world where increasing base rates have become a fact and increasing regulation is a certainty,” the spokesperson added. “We remain confident that P2P can form an important element of an informed investor’s diversified portfolio. This view would appear to be supported by the regulator and the authorities.”

The role of the retail investor in P2P has been thrown into the limelight in recent months due to new regulations.

The Financial Conduct Authority (FCA) unveiled its stricter rules on the marketing of high-risk products

to consumers – which includes P2P lending under its definition –in August last year.

Platforms had to put stronger risk warnings on their websites, telling consumers that P2P is a high-risk investment and they should not invest unless they are prepared to lose money.

Other rules, including banning investor incentives and introducing stronger appropriateness tests, come into force at the start of this month.

While some platforms have been relatively sanguine about the new rules, other industry stakeholders believe they have gone too far and will unfairly deter new, everyday investors from accessing lucrative returns in the space.

“The FCA have made it clear with their new FCA regulatory risk wording disclaimers that they believe the asset class should not be promoted to retail investors who have little or no appetite for risk,” said Lee Birkett, chief executive of JustUs.

“We will continue to serve retail investors but these will be predominantly be highnet-worth investors with £250,000 of liquid assets or more.”

Investors urged to diversify into P2P

INVESTORS could diversify their portfolio amid high inflation and economic uncertainty by upping their exposure to peer-to-peer loans, experts claim.

Double-digit inflation has put pressure on investors as traditional assets such as shares have been hit by rising costs and economic uncertainty.

The FTSE All Share Index has fallen 1.5 per cent in the 12 months to early January and it has also declined by around the same amount over five years as stock markets wrestled with Brexit, the coronavirus pandemic and now the Russian invasion of Ukraine and the cost-of-living crisis.

The Bank of England has also been pushing up the cost of borrowing

by raising interest rates to shift inflation lower.

This has pushed savings rates up but real term cash returns are still below the inflation rate and experts say P2P lending offers the benefits of returns that come closer to the cost of living measure and are uncorrelated to the stock market.

“With all rate benchmarks increasing this year, P2P lending is now offering a very high yield in comparison to savings accounts,” said Samuel Mather-Holgate, an independent financial adviser for Mather and Murray Financial.

“Of course, the risk is correlated to the return but if you chose a good platform with a robust risk mitigation strategy you shouldn't see delinquencies

and default rates too much higher than they are now.”

He said P2P lending is now a “very viable asset” in a well-diversified portfolio.

“I can see up to 15 per cent of a client's overall wealth exposed to this area,” he added.

“With such differences in approach between providers, it's really key that clients understand how each platform works, their objectives on default rates and how they plan to achieve this and the diversification strategy.”

Eugen Stamm of venture capital firm Verve Ventures said marketplace lending should have a firm position in every asset allocation.

“It is a very attractive alternative to more traditional fixed-income investments,” he said.

“There is a broad range of lending platforms that allow for diversification, which is essential. Returns compare favourably to bonds, which is why investors can allocate a large part of their portfolio to marketplace lending, as long as they are cautious to work only with established platforms that have a good track record and controlled growth.”

However, he cautioned that due to rising interest rates, investors should pick loans with relatively short duration.

Kuflink to add second-charge lending this year

KUFLINK plans to introduce second-charge lending, as it seeks to expand its product offerings this year.

Paul Auger, head of products at the property lending platform, told Peer2Peer Finance News that Kuflink is currently beta-testing some second charge lending products, with the aim of rolling them out later this year.

“We’re looking to enhance the projects that

we do on the bridging side and introduce second charge lending both on the commercial side and the consumer side,” Auger said.

“Once we bring out a second charge product we’re going to be entering a very competitive marketplace, so we are spending more time and effort making sure our tech is fit for purpose and enhancing it.

“We are working with a few people in the second charge marketplace to design a product that we feel is suitable for the market.”

Auger added that Kuflink is also planning to launch consumer credit products, as well as a number of commercial products, and Auger added that “the company has some very aggressive growth plans over the next two to three years.”

In preparation for this expansion of its business, the company has been growing its staff, employing more people in sales, underwriting and investor relations roles. It is also developing an app which will allow borrowers and lenders to access all of Kuflink products in one place.

To read more about Kuflink’s growth plans, see page 11

These are extraordinary times and our team is working hard to keep you informed about how the UK’s P2P sector is responding and what new trends are starting to emerge.

If you want to be the first to learn about the latest developments in the world of P2P, please purchase a subscription today.

We offer a range of subscription options, starting at just £9.99 a month. Please go to www.p2pfinancenews.co.uk/subscribe to buy a subscription today, so that you can enjoy unlimited digital access to P2PFN, with the option of a monthly print magazine.

For more information on subscriptions, including overseas queries, please email tehmeena@p2pfinancenews.co.uk.

It has never been more important to keep up to date with the latest peer-to-peer lending news.

Rising base rate poses challenge for P2P firms

ASSETZ Capital blamed the rising base rate and corresponding increases in bank savings rates for its recent decision to run down its retail loan book, as it made its product less competitive.

This raises the question of how high peer-topeer investment returns need to be to attract investors in the current economic environment.

The UK base rate is currently at 3.5 per cent and Bank of England is expected to continue increases over the next year in a bid to tame spiralling inflation.

This means that P2P platforms offering returns of around four per cent – like Assetz – are set for a tough time persuading retail investors to take on risk when they can earn a similar amount of interest in a cash savings account.

“One problem P2P lenders have is persuading people to take the risk of P2P lending, when they can get 4.7 per cent on cash savings over two years without the risk,” commented Sarah Coles, senior personal finance analyst at Hargreaves Lansdown.

“Not only are the returns better on cash than they have been for years, but the risks posed by the forthcoming recession are at the forefront of their minds. Given that default rates on unsecured lending are growing, there are bound to be concerns about issues with the repayment of loans.”

The Bank of England’s latest quarterly credit conditions survey, published on 19 January, showed an increase in default rates for unsecured lending in

the three months to the end of December. Defaults are also expected to increase in the first quarter of this year.

Some P2P lending platforms have raised rates in an effort to make their offering more attractive to investors.

By September 2022, Loanpad had announced six rate rises over six months, with premium accounts offering 4.8 per cent in returns. Meanwhile, EasyMoney scrapped its bottom rate investment product and moved account holders to its

premium account offering 4.03 per cent in October.

However, some platforms are offering much higher returns. Crowd2Fund raised its target interest rates to up to 16 per cent back in August, while CrowdProperty targets returns ranging between seven and eight per cent.

Lendwise offers target returns of nine per cent for backing student loans, while short-term lender Fund Ourselves targets returns of up to 15 per cent.

However, investors should make sure to decide on their risk appetite before choosing their P2P products.

“Typically those P2P companies offering higher potential returns will take on more risk in order to provide it,” said Hargreaves Lansdown’s Coles.

P2P can bolster the UK economy in 2023

THERE is a funding crisis in the UK at the moment, and small- and medium-sized enterprises (SMEs) are bearing the brunt. In recent months, there have been growing calls for more business support, as banks take a more conservative approach to lending. Last month, Experian research revealed that UK lenders are tightening

eligibility criteria and reducing supply in some categories; and a study by Towergate Insurance found that up to 57 per cent of SMEs risk closure due to a lack of funding this year. Given that SMEs represent more than 99 per cent of all business in the UK, this poses a serious threat to the overall economy.

In the absence of new

government support, SMEs will be seeking alternative sources of funding, and the peerto-peer lending sector is ready to step in.

P2P lenders have more flexibility than banks, and typically apply their own bespoke credit checking criteria to any prospective borrower. This means that creditworthy borrowers who get rejected by banks

for not meeting very specific criteria may be approved for a loan at an alternative lender.

In the current economic environment, there is a clear and urgent need for SME funding solutions, and P2P is well placed to step in and deliver that funding, bolstering the economy and creating new opportunities for savvy investors.

For even more peer-to-peer finance news, go to our website at www.p2pfinancenews.co.uk.

With real-time news and exclusive insights, www.p2pfinancenews.co.uk is your indispensable portal into the world of peer-to-peer lending. Go online to sign up to our e-newsletters, for a comprehensive digest of the latest peer-to-peer finance news sent straight to your inbox. You can choose our weekday e-newsletter, which comes out by 7am Monday to Friday, or sign up for our once-a-week version that is sent out at noon on Wednesdays. www.facebook.com/p2pfinancenews

How easy is it to access platform data?

PEER-TO-PEER lending platforms provide plenty of data to help potential clients decide whether to invest but platforms have different terms and methods for how this information is presented.

You can usually access details on loan book size, interest earned and predicted and actual default rates from P2P lenders to assess how comfortable you are with using a certain platform.

Here is how to find the key statistics from five of the largest retailfocused P2P lenders.

Folk2Folk

Business lender

Folk2Folk displays the total value of loans funded on its homepage.

It then takes one click on the invest tab and another on a section called defaults.

This will take you to a page where you can see Folk2Folk’s latest data on defaults.

Users can also download its most recent and previous outcomes statements that detail expected and actual default rate of all loans the firm has originated by risk category, a summary of the assumptions used in determining expected future default rates and the actual return against any target rate offered.

CrowdProperty

Property lender

CrowdProperty shows how much has been lent and the number of homes funded on its homepage.

It has a dedicated statistics page that is one click away from its homepage under the learn section.

This page shows detailed statistics by year including the total originated, the average size and number of loans as well as the rates and anticipated and actual losses.

Kuflink

Bridging and development lender

Kuflink has a statistics page that

can be accessed from its homepage.

Users can see details such as the total amount invested, capital repaid and the platform’s track record including the amount lent back to 2016, the typical property values and interest rates and default rates and predictions.

Invest

&

that can be accessed from the homepage.

It shows the platform’s loanbook performance from 2022 back to 2016 and includes the value of loans funded, projected and actual default rates.

Proplend

Fund

Property lender Invest & Fund displays how much it has lent and repaid to investors on its homepage as well as the average loan yield, number of homes funded and the capital and interest paid back.

There is a section called meeting our regulatory requirements

Commercial property lender Proplend shows its average returns from loans on its homepage.

Users need to click on the platform statistics heading to see further data.

This page shows the value of property and loans funded, the average loan to value and the performance of the loanbook including arrears and losses dating back to 2014.

Kuflink reveals ambitious plans for 2023

KUFLINK HAS BEEN ON a major growth trajectory over the past few years. It has grown to become one of the largest peer-to-peer lending platforms in the UK, with more than £238m loaned.

Recently, the property lender revealed that it almost doubled its profits in 2022. In fact, the platform has achieved profitability every month since August 2021.

But chief executive Narinder Khattoare and head of products Paul Auger have even bigger things planned for 2023.

This year, Kuflink is on track to make a profit in excess of £1m while increasing its turnover from £10m to £15m. Khattoare believes that the platform’s loan book will “definitely” reach £300m this year, making Kuflink one of a handful of P2P platforms to break the £300m milestone.

“This year is going to be a fantastic year for us as a business and I think we will excel and do over and above what our forecast says,” says Khattoare.

“People here are motivated and it’s great to see people coming into the office and coming in with a smile on their face.”

“The company has some very aggressive growth plans over the next two to three years,” adds Auger. “We want to be bigger not just in the bridging space but in

the lending space as a whole.”

This means launching a slew of new consumer and commercial products, hiring new staff, bringing on new institutional funding lines, and ramping up its retail investor base.

“We’re looking to enhance the products that we do on the bridging side and introduce second-charge lending both on the commercial side and the consumer side,” says Auger.

“It’s a growing business but we’re still agile enough and entrepreneurial enough to be able to change quite quickly in

response to the marketplace.”

For example, after Liz Truss and Kwasi Kwarteng’s mini-budget in late 2022, Kuflink was able to act instantly to change the dynamics of its products to protect the business and its investors. The platform had just begun to offer buy-tolet mortgages for the first time, but the chaos that followed the mini-budget meant that this plan was placed on the back burner.

“Whenever there is a major fiscal announcement, we don’t wait - we will hold a meeting very quickly to discuss whether we need to make any changes,” explains Khattoare. This agility means that Kuflink can always act in the best interests of its investors, no matter what is happening with the wider economy.

Auger predicts that the economy will start to turn around from April 2023, but both he and Khattoare agree that despite the current economic hardships, they are feeling confident about Kuflink’s future.

“There’s a lot more stability now and we’ve seen rates coming down even though there was another base rate increase in December,” says Auger. “It may be a turbulent 2023 and 2024 but over the next 10 years, times will get easier.”

In the meantime, Khattoare and Auger are building a business that will last, with plans to become a full-spectrum financial services company with a range of lending products and a vast network of investors.

“We’re not just building our business for today,” says Auger. “The ground work has to be put in.”

For Kuflink, the ground work is well underway, and 2023 will be the year that the platform shows what it is truly capable of.

The rebirth of retail P2P

Retail peer-to-peer lending is not dead, but it is evolving. Kathryn Gaw

investigates…

PEER-TO-PEER LENDING

was originally created for retail lenders. A multibillion-pound industry was built around the concept of individuals lending to other individuals, led by household names such as Zopa and Funding Circle.

But over the past few years, there has been a shift. Institutional backing has become the norm, and has even tempted some big players to leave the retail marketplace. Meanwhile, a challenging combination of economic instability, regulation and rising costs have seen the original ‘big three’ close

their doors to retail forever.

Zopa, Funding Circle and Assetz Capital, as well as older players such as ThinCats, Landbay and LendInvest, have all shifted their business models away from retail and towards institutional funding lines. Most recently, ArchOver announced that it was also leaving the retail P2P space due to higher costs and regulation.

It would be easy to see this as a negative for the industry. To the untrained eye – and the mainstream media – P2P is dying. But look a little more closely and something much more interesting

is happening. Retail P2P is not dying, it is evolving, and the next generation of platforms has learned from the past. These platforms are regulated, well funded, and extremely innovative. What’s more, they are appealing to a new generation of retail investors.

“As a P2P industry we need to attract young lenders and its something that we’re looking at and talking about,” says Paul Auger, head of products at Kuflink.

“We want to encourage younger investors to set up an investment plan and put in a certain amount each month.

This way we could actually try to capture them as a lender for years and help them build wealth.

“It’s the younger generation that we need to try to capture because we want to build something that will outlive us.”

Pasco, co-founder and chief executive of Plend.

“While the recent restrictions on financial promotions of P2P products make this difficult for everyone, the plan for Plend is to keep a mix of both institutional and

great complement to a stockheavy investment portfolio. As a result, awareness of P2P investing is limited.

This was particularly evident during a recent Dragon’s Den episode, when new consumer P2P lending platform JustLend made a pitch for a £100,000 investment. The five ‘Dragons’ –all business experts in their own right – were in agreement that there is a clear need for affordable consumer credit solutions, and two of the Dragons offered the full investment in return for a small equity share of the business.

Younger investors may not be as wealthy as the older investors who have historically been attracted to P2P, but they have a familiarity with technology, and a willingness to take on more risk in the search for better returns. In short, they represent the future of P2P.

“The younger generation have never walked into a bank,” explains Narinder Khattoare, chief executive of Kuflink. “Everything is done on an app.” As a result, Kuflink is currently looking to automate its products and create an app where all lending and borrowing can be done intuitively.

Meanwhile, Plend will soon launch a new retail product powered by open banking, which is set to appeal to younger investors. The consumer lending platform has invested heavily in its technology and has created a unique creditchecking process which resonates with younger borrowers and lenders in particular. Rental records, memberships and online subscriptions are all used to vet prospective borrowers, reflecting the reality of life in 2023.

“Our approach is a bit more bespoke,” says Rob

retail lenders on our platform.”

These restrictions have perhaps caused the biggest headache to those platforms which are seeking to attract new lenders. Following the failure of platforms such as Lendy and Collateral, the Financial Conduct Authority (FCA) introduced a slew of increasingly strict marketing restrictions which have made it harder for platforms to advertise their products to retail investors.

This makes it tricky to get the message across the message that P2P is stable, established and actively regulated, and a

In the week after the Dragon’s Den episode with JustLend aired, Google searches for ‘P2P lending’, ‘peer-topeer lending’ and ‘consumer loans’ rose by more than 10 per cent each. Searches for ‘JustLend’ rose by more than 100 per cent.

It is clear that when people are made aware of the possibilities of P2P lending, they respond to it, especially in the current economic climate. Low savings rates, ongoing stock market volatility and the near-collapse of the cryptocurrency market mean that investors of all stripes are now seeking a new home for their money. In the absence of

“

The most important aspect of retail P2P lending in future is that it will continue to supply attractive, stable lending returns to the vast majority of investors”

widespread marketing, they will get their P2P education via word of mouth, and via the media.

Neil Faulkner, managing director of P2P ratings site 4th Way, believes that this lack of P2P knowledge has held some investors back in the past.

“Probably the biggest disappointment for investors in this industry has been their expectation that they will always be able to get their money back early,” says Faulkner.

“The industry has tried to explain that, but not hard enough or often enough. This gradual shift in the industry helps investors to better understand how to invest.”

The retail P2P space looks very different today than it did six-anda-half years ago when this magazine was launched. Then, a handful of established platforms were growing rapidly, there was great fanfare around the new Innovative Finance ISA (IFISA), and P2P investors were enjoying access to higher returns on eco-friendly projects thanks to government subsidies on wind farms and other clean energy initiatives. However, in 2018 these subsidies came to an end. And last year, HMRC told Peer2Peer Finance News that it had not issued a new IFISA licence since July 2021.

More damaging to retail P2P was the collapse of platforms such as Lendy, Collateral and FundingSecure. These platforms were unregulated, and the FCA has come under ongoing criticism for failing to intervene sooner to save retail money. In response to this criticism, the regulator has taken a much more heavy-handed approach towards retail-focused P2P. New investors must now pass an appropriateness test before joining a P2P platform, and the risks of P2P must be highlighted

on every platform website. This can be off-putting to novice investors, particularly when the rewards are not being advertised with quite the same spotlight.

In truth, a Lendy-style collapse is extremely unlikely to occur again. As a result of the FCA

regulations, all platforms now have a wind-down plan in place which protects investors from all-out losses. Furthermore, a significant number of platforms are still able to boast a clean sheet with zero investor losses to date.

Despite the disruption of the past few years, P2P returns have continued to be stable and strong. Peer2Peer Finance News analyses have found that IFISA returns have averaged between seven and nine per cent per annum for the past five years, even after losses and defaults have been taken into consideration.

This track record is often

“ As a P2P industry we need to attract those young lenders”

overlooked in mainstream coverage of P2P, but those in the know are quietly pouring more money into their favoured platforms. Unfortunately, in the absence of retail marketing it is institutional investors who are spotting these opportunities, and they don’t always want to share.

“We’ve been talking to institutional funders and they all ask if and when you take an institutional funding line from us do you intend to close down your P2P retail platform,” Khattoare reveals. “Some even ask for priority on loans. For us, the answer is always no.”

Khattoare believes that institutional and retail funds can complement each other. In fact, retail money is often the more attractive prospect.

“You can grow a business and be profitable by doing pure P2P,” he says. “The challenge you have with an institutional facility is that if something happens in the marketplace, they can instantly stop lending. Whereas retail is more sticky.

“We have no desire to walk away from the P2P lending market,” adds Khattoare. “We want to have diversified sources of funding.”

This combination of retail and institutional funding is another hint at the future evolution of P2P. Institutional funding can help platforms scale and survive expensive growing pains such as new regulation and economic downturns. However, the ability to attract and retain retail funds is central to the industry.

“The most important aspect of retail P2P lending in future is that it will continue to supply attractive, stable lending returns to the vast majority of investors, just as it has done since the sector began in 2005,” says Faulkner.

“The sector has gradually been evolving away from a focus on lower rates combined with provision funds and easy access into a more mature offering in line with what money lending does best: stable, better rates offered to investors who are willing and able to commit their money across lots of loans until borrowers repay them.”

Retail P2P lending has a track record of almost two decades now. It has survived the global financial crisis, Brexit, Covid, and the current recessionary environment, and it is still delivering competitive returns to investors. While the sector may be evolving, targeting new demographics and diversifying its investor base, these fundamentals will stay the same.

“ This gradual shift in the industry helps investors to better understand how to invest”

From IT to P2P

Lars Wrobbel is one of Germany’s most influential peer-to-peer lending bloggers. He tells Marc Shoffman how he became involved in the sector and how he chooses his investments

PEER-TO-PEER LENDING

blogger Lars Wrobbel quit his “stable but boring” job in IT in 2019 to focus on his investment portfolio.

The 37-year-old has built a portfolio that includes P2P investments and shares worth more than €300,000, supported by publishing books about finance and other subjects on Amazon.

Wrobbel has built a strong online community at Passives Einkommen mit P2P Krediten from his home in Germany where he shares tips on P2P investing strategies and his views on various platforms.

He explains how P2P lending has helped him become financially-free.

Marc Shoffman (MS): How did you get into P2P lending?

Lars Wrobbel (LW): My main employment was in IT and I also wrote books to sell on Amazon. I earned a lot of money and invested 90 to 95 per cent of the monthly revenue into P2P lending and the stock market to build my portfolio.

My portfolio strategy is cashflow orientated. I invest in instruments where I can generate a steady cashflow – this will overtake my day job some day.

The first contact I had with P2P lending was due to a YouTube channel. I started by investing €25 (£22) in Auxmoney in 2015 and thought it was a nice idea to give loans to other people. I then did

my research to find better rates and discovered Bondora and Mintos.

I then started a blog about investing in P2P loans, it was never my intention to earn money from it. I just wanted to write about the topic and didn’t realise I was one of the first P2P bloggers. It has turned into a huge community.

Consumer lending is the easiest way to get into the topic and it is the sector where I can park my money for 60 or 90 days, while in

contrast, when investing in real estate your money is bound for two or more years.

My largest P2P investments are now with Bondora. I have good contacts with the team as I worked in its offices previously. It is one of the oldest and most reliable P2P lenders on the continent. I like the ease of its products, it has a one-click investment facility where you don’t have to search for loans and can deposit your money for it to be invested.

I like to analyse the company but not the loans. It saves time searching for single loans as you leave the work to the experts.

P2P lending is currently 18.62 per cent of my portfolio, I have a cap of 20 per cent. If it reaches that I will cash out on some platforms, last year was strong for P2P as the stock market was down.

MS: Why do you like P2P lending?

LW: The most important thing is it is more or less uncorrelated to the stock market.

If you have turbulence in the stock market, it does not impact the P2P market.

Everything is fine as long as the platform is not going down.

I have had losses of course. In 2019 we had scams in the Baltics, I researched most of them but was trapped in Grupeer and lost around €3,000.

I also lost some money in Mintos due to the Covid crisis as there were some loan originators that collapsed.

Overall though, the losses haven’t affected me.

MS: What platforms do you recommend?

LW: Right now my favourite platform is Robo.cash.

It is based in Singapore but the main team sits in Russia so see themselves as an international company.

I visited them in 2019 in Siberia, it is crazy to think about that today. It is a young team all against the war, it is one of the biggest P2P platforms, their numbers are unbelievable.

All the growth areas are international such as in the Philippines.

They are reliable and have not had any problems since day one.

MS: What is your view of the UK market?

LW: The hurdles for investing in the UK are a lot higher compared with continental Europe.

You need a lot of money if you want to diversify your portfolio especially in real estate.

Platforms such as Shojin have a minimum investment of £5,000 whereas you can begin with €50 on EstateGuru.

There are interesting platforms in the UK and I have started investing in litigation backer AxiaFunder.

It is really cool and there is nothing similar in the rest of Europe.

MS: What is your view on P2P lending regulation?

LW: Regulation in general is a good thing to avoid all the scams. It is not 100 per cent but it puts the bar higher.

The UK feels like it is a bit over regulated. There are many hurdles for investors before you can invest.

Platforms in the Baltics have recently started getting regulated. Some are having problems transferring into regulated entities but it is still a good thing to have a more stable and sustainable market.

There is still no regulation for consumer P2P lending so there is the risk of scams in this area in Europe.

The sector’s image has been restored since 2019 when there were some scams and then the Covid crisis which damaged the industry. Platforms are more stable than ever today. A lot of the Baltic platforms are now regulated so the hurdle for scams is higher.

MS: Should P2P be open to all retail investors?

LW: P2P is a good tool for ordinary people to diversify their overall portfolio and learn more about finance. It should be open for everyone, that is the essence of P2P lending, to give out loans to other ordinary people or businesses.

MS: What is your view on P2P lending risks?

LW: Today I mostly look at the regulation level of the platforms. I invest more in platforms that are regulated and have audited reports. A lot of platforms don’t have audited reports, that is a sign for me not to invest. Audited reports mean I can compare a brand with big companies.

Looking at the loanbook or loan performance of a platform is tricky as every platform has its own techniques, the real value for me is the audited report of the company.

Another important point is communication. If I invest in a platform and get a newsletter just once a quarter, that is not enough. For example, I get updates from Mintos two or three times per week with details on loan originators and the platform itself so I am up to date on what is going on.

MS: What is your outlook for the sector?

LW: I see a more stable future for P2P lending than we had before, due to regulation. A platform starting today is more professional and mostly directly regulated. Back in 2018 you could start a website with some clicks and collect the money without people checking. The industry has become far more professional.

Foundations for the future

What is the outlook for retail-funded development finance?

Hannah Gannage-Stewart finds out

PROPERTY DEVELOPMENT

finance has become one of the most popular products in the peer-to-peer lending sector. It was traditionally the preserve of institutional and high-net-worth investors, before it became available to retail investors via P2P platforms.

Many everyday investors have now benefitted from stellar returns by backing development projects.

However, Assetz Capital’s decision to freeze withdrawals from its instant access accounts in November left some industry commentators questioning the P2P development finance model. Should retail investors be backing higher-risk development projects and are instant access accounts an inherent risk when the loan is structured across staggered drawdowns?

Assetz took the decision to freeze withdrawals for fear that outflows may outpace new investment, leaving development loans underfunded. The following month, the lender pulled out of the retail market altogether.

Assetz Capital’s chief executive

Stuart Law then sparked fierce controversy among the industry when he questioned the future of P2P development finance.

He predicted that the Financial Conduct Authority (FCA) is likely to resurface plans to ban the marketing of P2P development loans, having shelved the proposal last year.

Speaking to Peer2Peer Finance News in January, Law said it was a “very dangerous” time for the industry, as many platforms have retail-backed development finance loans as a large part of their businesses.

“Generally, when things go into [FCA] consultation papers, they don’t come out,” he said. “It was a huge amount of lobbying to get it delayed as a decision. However, the writing is on the wall. My personal belief is development funding will get severely restricted or cancelled as a valid form of lending for P2P.”

Bosses of P2P development finance platforms were quick to convey their disagreement with Law’s comments. They argued that the sector plays a vital role in delivering much-needed

finance to small housebuilders that they cannot get from traditional banks, while providing bumper returns to individual investors.

Furthermore, many of these platforms have good track records with zero losses to date and consistently see loan tranches filled quickly once they go live, indicating extremely strong demand for these products.

Some argue that the product is not necessarily high risk, if there is a

“ On paper it works, but more people have to keep funding it for it to work, and life doesn't work that way”

strong team in place with extensive expertise in the property market, working with trusted developers.

CrowdProperty, which specialises in residential development finance, has been very open about its commitment to retail investors on its platform, as part of a diversified mix of funders.

“Marketplace lending as a sector was revolutionary in bringing lending opportunities direct to individuals, more efficiently and

effectively matching the supply and demand of capital for the benefit of all,” the platform said in December. “CrowdProperty has proven the efficacy of this model in the property development space, with strong, consistent and transparent returns over many years since founding in 2013, reliably backing quality property developers taking on quality property projects worth over £625m.”

Conversely, Brian Bartaby at

Proplend does not believe that P2P works with development funding and his platform has never done it for that reason. Instead, the firm focuses on more straightforward commercial property loans, which are paid in a lump sum, with no further drawdowns.

“Fundamentally, I have never believed that property development is the right asset product for P2P lending,” Bartaby explains. “On paper, it's super-efficient. On paper

it works, but more people have to keep funding it for it to work, and life doesn't work that way.”

On top of this, Bartaby echoes Law’s concerns that the regulatory burden of incorporating retail investors is too high once a platform scales. As P2P lenders increasingly shift towards institutional investment to shore up their development funding commitments, it gets harder to truly meet the requirements of a pure P2P lender. It can be done, and many lenders do run mixed portfolios within the regulatory requirements, without letting borrowers down, but it’s an onerous task.

EasyMoney is one such lender. The platform has a substantial retail loan book, alongside institutional investment and the platform’s own money, which together enables it to honour property development funding without fear that a rush on withdrawals could bring the house of cards tumbling down.

However, chief executive Jason Ferrando admits that there is always a risk that investors will be spooked and rush on withdrawals. Likewise, he says the FCA’s required reporting around retail loan books is substantial, but the scale of the retail investment at EasyMoney makes it worthwhile.

The way EasyMoney enables retail withdrawals is to give investors access to a secondary market, where they can sell loan parts at a poundfor-pound value. As soon as the loan part has been bought, the investor gets their investment back, and funding for the loan itself remains secure.

However, like other platforms, Ferrando has seen a trend away from retail investment. “What we've seen happen is, as some of the smaller investors have withdrawn from the P2P market – whether it's because of

legislation, a downturn in the market or the fact that we've got to put these risk warnings up a bit more prominently – we’ve seen more high-networth money come into the sector.”

Meanwhile, EasyMoney is doing less development funding than it once did. Ferrando says around 70 per cent of the loan book was development loans but following the pandemic the platform has seen that reduce to nearer 20 per cent.

He says the change is not by design, and EasyMoney is still looking to do development loans, but the market has naturally shifted.

At LandlordInvest, chief executive Filip Karadaghi said his platform has a limited number of development finance loans on its books but broadly agrees with Bartaby that the onerous regulation and management of the staggered drawdowns makes them

unappealing.

“Even institutional lenders can just pull their investment one day, there is no guarantee,” he comments. “It’s exactly like retail investors may panic for whatever reason. Institutional investors may also panic for whatever reason and pull out their funding. So, it's a tricky situation.

“I wouldn't build a business just based on development finance, because the risk is just too great that your liquidity might dry up at any time and being stuck with a halfcomplete development is hugely inconvenient. Also just dealing with development finance is so much more time consuming, than it is with a bridging loan. I mean, in terms of time requirements it’s a crazy amount of time.”

For Kuflink’s head of products Paul Auger, the right balance

of investment for a diversified portfolio of funders is key to sustaining a thriving P2P platform and continuing to fund property development.

“We've seen it so many times before that people build up to a certain level and then they say, ‘right, we don't need P2P anymore now, because we've got institutional funding’,” he says.

“We don't have that opinion at all. We want to be multichannel. So, we want to be funding deals via the platform, we want to be funding deals via high-net-worth individuals, institutional funding, pension funding, we want a whole range of diversified funders to us.”

That’s not to say Kuflink doesn’t see the benefit of institutional funding, which it is in the process of bringing on board, but at present all of its more

than 7,000 active funders are via the platform, a mix of retail and high-net-worth individuals. What the lender doesn’t want to do is bring in institutional money at the exclusion of all else.

Auger admits that some institutional investors prefer a platform to prioritise them over retail, and that has been something Kuflink has had to negotiate round. He says it remains unwilling to drop retail, despite other P2P executives feeling the marketing is dropping away.

The firm takes a similarly pragmatic view on development funding. Auger is under no illusion that it can be difficult to fund property development via P2P, so he says Kuflink is careful to stay in its lane.

“We don't really market for the really large deals,” he says. “People say they're doing £7m deals, £10m deals. That's not really our sweet spot, because I agree on that side of things, we may give ourselves a challenge to fund those deals on an ongoing basis. The size of deals that we do, our sweet

spot, is up to £2m or £2.5m.”

Kuflink doesn’t rely purely on retail to fund these deals, it will line up high-net-worth funding to ensure the deals are funded to completion. Auger says they build head room into the fund too, overfunding it, and there are no instant access accounts, so there is no risk from a rush on withdrawals.

The shortest term a retail lender can invest on Kuflink is one year. Auger says there was a threemonth product at one point, but the interest rate was not appealing enough to attract investment and the product was withdrawn.

For a number of lenders such as EasyMoney, Kuflink and CrowdProperty, confidence remains high that retail-backed development finance is here to stay, particularly alongside institutional funding.

For others, this is an area that no longer, if ever, fits into their business model. The diverging opinions perhaps point to a maturing marketplace, where platforms are evolving into new niches and choosing their own paths to success.

“ Even institutional lenders can just pull their investment one day, there is no guarantee”

INVESTMENT PLATFORMS

Assetz Exchange is a property investment platform delivering long term stable income for investors, primarily through the purchase and leasing of housing for social good. Regulated by the FCA, it provides the opportunity for investors to create a diversified property portfolio and alternative funding options for the housing sector. www.assetzexchange.co.uk

T: 03330 119830

E: info@assetzexchange.co.uk

Folk2Folk is a profitable UK lending and investment platform. More than half a billion pounds has been invested via the platform with no investor losses to date. Loans are a maximum of five years, secured against land/property at a maximum 60 per cent LTV, with a fixed rate of typically 6.5 per cent, per annum. www.folk2folk.com

T: 01566 773296

E: enquiries@folk2folk.com

Invest & Fund is an established alternative finance platform that has deployed over £190m on clients' behalf and has repaid over £115m to lenders with zero per cent bad debts written off. Lenders can achieve a diversified, asset-backed portfolio with gross yields averaging from 6.75 per cent per annum with an option to lend through an ISA or a SIPP for tax-free returns. www.investandfund.com

T: 01424 717564

E: lending@investandfund.com

JustUs is an innovative peer-to-peer lender that provides a range of consumer and property-backed loans. It has lent out more than £20m and paid more than £1.4m in interest to lenders to date. Investors can enjoy returns of up to 10.69 per cent, with all products eligible to be held in an Innovative Finance ISA for tax-free earnings. www.justus.co

T: 01625 750034

E: support@justus.co

Kuflink is an award-winning lender and online investment platform. With over £220m invested through the platform, investors can customise their own portfolio investing in specific loans or in a pool of loans diversified across a number of opportunities. Earn up to 7.44 per cent (compounded) per annum, with an IFISA available.

www.kuflink.com

T: 01474 33 44 88

E: hello@kuflink.com

LANDE is a crowdfunding platform that gives investors access to secured agricultural loans. It has created a unique scoring model, accessible infrastructure, and a variety of products so that farmers are able to access financing quickly and easily. With LANDE and its investors as partners, farmers can become more independent and sustainable, while improving their yield, efficiency and profitability. Projects offer interest rates of up to 13 per cent per annum.

https://lande.finance

T: +371 20381802

E: info@lande.finance

Lendwise is the UK’s only peer-to-peer lender that is dedicated to impact investing in education finance. Investors finance education for borrowers at universities and business schools across the UK and globally. Investors define their own risk appetite and use Lendwise’s AutoLend feature to diversify their strategy across a pool of loans, which can be invested in an IFISA wrapper earning average returns of up to nine per cent per annum. www.lendwise.com T: 0203 890 7270 E: lenders@lendwise.com

SERVICE PROVIDERS AND INDUSTRY ORGANISATIONS

The European Crowdfunding Network (EuroCrowd) is an independent, professional business network promoting adequate transparency, regulation and governance in digital finance while offering a combined voice in policy discussion and public opinion building. It executes initiatives aimed at innovating, representing, promoting and protecting the European crowdfunding industry. www.eurocrowd.org E: info@eurocrowd.org

Q2 creates simple, smart, end-to-end lending experiences that make you an indispensable partner on your customers' financial journeys. Its modular platform gives you the ability to manage lending simply throughout the entire loan lifecycle, from application, onboarding, servicing to collections. The result is a better experience for both borrowers and lenders. https://eu.q2.com T: 020 3823 2300 E: info@Q2.com