Peer2Peer Finance News March 2023

What our borrowers say about

“I

-

- Susan 08/02/2022

Why

- Gabor 17/05/2022

What we do

Medium to long term investment opportunities with fixed interest rates and loans up to 10 years

As with peer-to-peer loans, interest in not guaranteed and you may not get back your capital

Ability to release liquidty where available through Lendwise’s secondary marketplace

Diversify loan investments through Lendwise AutoLend, allows loan selection with specific attributes in line with chosen attitude to risk

Lendwise Loan investments eligible for IFISA*

*The tax treatment of investments will depend on your individual circumstances and may be subject to change

“Straight forward application and great customer service”

“This was the best customer service experience I have ever got”

Roy Warren on loyalty to retail investors

IFISA returns on the rise

INVESTORS are enjoying higher returns from Innovative Finance ISAs (IFISAs) in the latest tax year, exclusive research from Peer2Peer Finance News has revealed.

As at the end of February 2023, a fully diversified IFISA portfolio spread across all 41 available providers would return an average of 8.83 per cent, according to the target returns stated for the 2022/23 tax year.

By comparison, at the end of February 2022, 39 IFISAs were open to retail investors, targeting average returns of 7.75 per cent.

“The growing opportunities in the IFISA market, with even better returns now, are set against the industry's long-term, highly stable performance for the majority of investors, in defiance of the ‘high-risk’ labels that the Financial Conduct Authority (FCA) is cautiously enforcing on

large numbers of IFISA providers,” said Neil Faulkner of P2P research and ratings firm 4thWay.

“The industry itself is showing the FCA that investors are interested in alternatives to the stock market that are non-volatile with excellent net returns.

“Thanks to the unprecedented transparency of many of these investment providers, I can see that we should have no doubt that the vast majority of investor cash will continue to perform very well in the coming years.”

Furthermore, historical

research by Peer2Peer Finance News has found that actual IFISA returns over the past five years have been extremely consistent, in stark contrast to the volatility of the stock market.

By the end of the calendar year 2021, average IFISA yields were at 7.8 per cent, compared to nine per cent in both 2020 and 2019, and 8.73 per cent in 2018.

Rishi Zaveri, chief executive of education IFISA provider Lendwise, noted that Peer2Peer Finance News’ latest February 2023 figures show a higher return

due to P2P platforms’ recent rate rises.

A number of P2P platforms have increased their investor rates in recent months, in order to make themselves more competitive against higher bank savings rates, in an inflationary environment.

“I think there will be pressure on platforms to provide lenders with a higher return,” Zaveri said. “As long as P2P platforms reflect this in the rates they offer to their lenders, the IFISA market should continue to grow albeit the negative >>

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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

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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.

At P2PFN towers, we don’t need convincing about the benefits of the Innovative Finance ISA (IFISA). Stellar returns, diversification away from the stock market and tax-free earnings are only some of the advantages of the peer-topeer lending tax wrapper.

Investors can also do social good by backing projects on a host of ethical and environmentally friendly platforms, supporting people underserved by traditional lenders or lending to small businesses, which are the backbone of the UK’s economy.

So why aren’t IFISA inflows far greater by now? More than £72bn was invested across all ISA accounts during the 2020/21 tax year, but IFISA volumes made up less than £1bn of this total amount. This is staggeringly low given the returns on offer and diminutive default rates across the best platforms in the industry.

Some industry stakeholders say that stricter marketing rules have made it more challenging to attract new retail investors, but I believe there is still scope to boost education and awareness of the IFISA.

As you can see from the pages of Peer2Peer Finance News, P2P lending platforms have not been banned from advertising their products to investors, despite the tighter guidelines.

Furthermore, my interaction with P2P investors over the past sixand-a-half years suggests to me that many of them would fall into the ‘sophisticated’ category, if not high net worth. Surely this is a larger group than current inflows suggest, with significant scope for growth.

Peer2Peer Finance News is working hard to promote the IFISA, as are certain providers, but we’d love to see more widespread promotion of the industry by platforms. As the saying goes, you can have the best product in the world, but if nobody knows about it, what good is that?

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.

cont. from page 1

Platforms raise rates to stay competitive

impact will come from how quickly banks and building societies increase their rates.”

The City regulator has imposed stricter marketing rules on “high-risk” investments,

making it more challenging to attract new, everyday investors.

Several IFISA providers have raised their minimum investment thresholds over the past year as a result, in order

to focus on sophisticated or high-net-worth retail investors instead.

During the 2020/21 tax year, more than £72bn was invested in ISA accounts, but IFISA volumes made

up less than £1bn of this total amount, showing the size of the potential opportunity for the market.

For more on IFISAs, read our special report on page 8.

CrowdProperty sets out three-year growth strategy

CROWDPROPERTY is set to use its forthcoming Seedrs fundraise to help it deliver a new threeyear growth strategy.

In a shareholder letter seen by Peer2Peer Finance News, the peer-to-peer lending platform outlined its plan to build “a truly scalable development lender”, adding that it would be taking a cautious approach to growth due to the economic climate.

The letter, dated 8 February, detailed CrowdProperty’s fourth equity fundraising round on private investment platform Seedrs, which is expected to launch imminently.

“This fundraise is to ensure that we fully fund the three-year strategy, with the equity capital raised being put alongside reinvestment of profits and cashflows from the operating business and working capital optimisation measures,

meaning that this equity capital raise will be smaller than the last (and less dilutive), but overall, more will be invested in strategic growth,” the shareholder update said.

CrowdProperty last raised money on Seedrs in August 2021, collecting £1.8m from 793 investors, and surpassing its £800,000 target.

The shareholder update said it would be applying greater scrutiny around the loans it writes, and around valuation, cost and credit

policy. It also said it had developed “ever stronger portfolio management systems, processes and governance”.

It said these principles were “core to building a truly scalable development lender” and were embedded in its newly defined threeyear growth strategy, which would focus on strong people and culture, scalable systems and processes, robust governance and control, and exceptional customer relationship management.

In the last 12 months, CrowdProperty has grown development facilities agreed by 51 per cent, despite a slow fourth quarter of 2022. The first three quarters of the year delivered a year-on-year growth rate of 76 per cent.

Revenue grew by 41 per cent and the firm forecasts a third consecutive year of profit, despite significant ongoing investment to build infrastructure for future scalability.

Last month the lender received £400m of applications for development finance and is currently processing £870m of facilities in the active pipeline.

Having paid back £168m to institutional and private investor capital sources with an average first-charge secured return of 8.07 per cent, the lender is in the process of closing further institutional capital sources.

JustUs increases IFISA threshold to £10k

JUSTUS has increased the minimum investment threshold on its Innovative Finance ISA (IFISA) from £100 to £10,000 ahead of the 2023 ISA season.

The peer-to-peer property lending platform made the change at the end of January in response to tightening regulation which has increased the cost of onboarding new lenders.

Lee Birkett (pictured), chief executive and cofounder of JustUs, told

Peer2Peer Finance News that the platform has made the decision to focus on family offices, pension funds and highnet-worth individuals.

“The new financial promotion disclaimers which came out at the end of January, basically put property-backed secured lending in the same high-risk categorisation as super-high-risk equity crowdfunding, which is disproportionate,” Birkett said.

“It's not worth the onboarding and ongoing monitoring of each lender unless they've got £10,000 invested, it's such a shame.

“We will still work with retail investors who are investing £10,000 and above but we are really just focussing on family offices, pensions and high-networth individuals now.”

Last month, JustUs raised its borrower and investor rates by one per cent and 0.5 per cent, respectively. At the time, Birkett said that “the outlook for JustUs, our borrowers and investors is one of cautious optimism.”

P2P firms ready for consumer duty

REGULATED firms have until the end of July to comply with the Financial Conduct Authority’s (FCA's) consumer duty rules but peer-to-peer lenders argue many of these policies are already embedded in their businesses.

The consumer duty mandates firms to provide more clarity on their products and services, rather than burying key information in lengthy terms and conditions.

Firms will be required to test and show that their communications are clear and that consumers are receiving good outcomes.

It will apply to existing products and services from 31 July 2023 and be

extended to cover products and services in ‘closed books’ from 31 July 2024.

P2P lending executives argue that their consumers already get clearer treatment compared with traditional financial services brands, particularly as platforms provide statistics and regular outcome statements.

“We applaud the modifications that the FCA has suggested through the consumer duty,” a Kuflink spokesperson told Peer2Peer Finance News.

“Consumers' best interests are Kuflink's main priority. Our work on the consumer duty has already begun, and one of the adjustments is making our documents

more user-friendly.”

The platform said it has conducted customer surveys since 2021 and has done a complete operational review with the consumer duty fully in mind.

“Within our business, we have already incorporated customer input and seen excellent results,” the spokesperson added.

“We also pay great attention to how our products and services are understood by consumers, and we use consumer surveys as a technique for evaluating this result. We think that in these testing times, all businesses should integrate consumer welfare as its core objective.”

Ben Shaw, founder of

HNW Lending, said his platform has always tried to be clear and transparent with lenders.

“For example, we give a clear creditworthiness report for every loan and a copy of the valuation to all lenders as well as important metrics about the loan, such as its loan to value and the directors first loss tranche,” he said.

“The FCA's recent communications have pointed to areas where we have improved the clarity or disclosure of what we say to investors, for example around our Innovative Finance ISA and this can only help to strengthen consumer's confidence about investing into loans with us.”

Folk2Folk boss warns of “dangerous” City funding

FOLK2FOLK managing director Roy Warren has reiterated the platform’s commitment to individual investors and warned of the dangers of relying on institutional funding.

The secured business lending platform is now the largest peer-to-peer lender in the UK, with a loan book nearing £600m.

In an exclusive interview with Peer2Peer Finance

News, Warren said the platform will remain loyal to its existing customer base, despite the challenges of stricter regulation.

“Last month we turned 10 years in existence, we have got to where we have today through our loyal high-net-worth investors, that’s where our loyalty lies,” he said.

“It is easy to throw it away and go to

institutional funding. It would be an easy life, especially with increased regulation around retail and fear of further constraints… but why should we deprive high-net-worth individuals of the choice? That’s the key thing.”

Warren added that “running into the arms of an institutional investor is a dangerous place to be in”

as you can end up losing control of your business. He revealed that Folk2Folk has had discussions about large institutional funding lines but felt that those companies would end up running the platform.

“We are open and encourage people to come forward, but it is getting the terms right,” he said.

Go to page 16 to read the full interview with Warren.

Where should you put your IFISA money this ISA season?

SEVERAL peer-to-peer lending brands may have left the Innovative Finance ISA (IFISA) market but there are still plenty of options for new investors looking to make the most of this year’s tax-free allowance before the April deadline.

Assetz Capital became the last of the £1bn lenders to exit the space earlier this year and claimed to have around £72m in its IFISA wrapper. For the same £1 minimum investment, you can still access its sister brand Assetz Exchange’s social-focused property developments in an IFISA for a rate of up to six per cent.

Returns are just one metric for assessing a P2P lending platform and it is important to do your research so you understand the type of

loans being backed, the platform’s loan book performance and the risks you are taking.

According to the latest Peer2Peer Finance News data, several P2P lending platforms are currently targeting double-digit returns through their IFISA accounts. Share Credit is advertising returns of up to 16 per cent for IFISA investors, although its weighted average annualised return for 2022 was 8.27 per cent.

Meanwhile, consumer lender Fund Ourselves offers returns of between five and 15 per cent for a minimum investment of £1,000.

If you prefer to invest in secured loans, you can put money into proper tybacked finance through platforms such as Shojin, which offers rates of up to

15 per cent depending on the project, for a £5,000 minimum investment.

LandlordInvest, Proplend and Sourced

Capital all have interest rates of up to 12 per cent for a lower minimum investment of £1,000.

If you want to back small businesses, P2P lender Crowd2Fund offers rates ranging from eight to 15 per cent depending on the loan opportunity, for a £100

minimum investment. Another business lender, Rebuildingsociety, has rates of up to 6.1 per cent and you can invest with as little as £10.

Looking at longevity in the market, the longest standing P2P lender since Assetz Capital’s exit is now Folk2Folk, which launched in 2013. Its target rates range from 7.5 per cent to 9.5 per cent per year secured against land or property but investors need a minimum investment of £20,000.

Meanwhile, residential development lender CrowdProperty, which launched in 2014, offers rates of up to 8.5 per cent for a minimum investment of £500.

These are all factors to consider as you weigh up where to put your IFISA money this ISA season.

Lendermarket seeks new loan originators

PEER-TO-PEER LENDING

marketplace Lendermarket is seeking to onboard new loan originators, as it aims to diversify its offer on the platform in the coming year.

The Dublin-based company currently works with four loan originators, which are based in Peru, Nigeria and Estonia, but it is now looking to expand its offering with new lenders based in the UK, Europe and further afield.

“One of our top priorities for this year is to bring additional diversification to the platform for our investors,” said Lendermarket’s chief executive Endrik Eller (pictured).

“We believe that in order to have a healthy portfolio it has to be well-diversified, and we are striving to offer just that to our investors.”

Lendermarket is mainly targeting small- and mediumsized lending companies which have a loan portfolio of between €5m (£4.43m) and €50m. It is particularly interested in companies in the European Union and in the emerging markets of Africa, Latin America and South East Asia. However, Eller added that he is open to partnering with UK-based loan originators “if it is the right opportunity”.

In order to qualify for inclusion on the Lendermarket platform, lenders should be able to offer double-digit returns to investors, with loan terms of no more than five years.

Lendermarket’s existing loan originators have been effusive about their experience with the platform, describing the process

of collaboration as “flawless”, “seamless”, and “swift”.

After onboarding Estonia-based Creditstar in 2019, the company went on to grow its business tenfold, and other companies have seen a similar boost.

“Lendermaket runs a smooth operation and therefore our collaboration has been flawless,” said Raido Reiska, co-founder of Credory.

“The funding of our loans has given us more access to new capital and Lendermarket has also increased our visibility to investors.”

“Through a seamless onboarding and integration process, Lendermarket offers a valuable platform to create the requisite liquidity needed for growth and profitability,”

added Ebenezer Ekiko, head of treasury at QuickCheck.

“The high quality bespoke and professional service is highly commendable. Response and turnaround time for service delivery is also swift.”

Lendermarket generates its income by charging a fixed fee from the loan originator, which varies depending on the amount of money that has been raised by the platform.

“The exact commercial model depends on the country and the type of loans that the loan originator provides,” explains Eller.

“Taking into account the conditions and economic situation of the country they operate in, every loan originator decides what interest rate they offer to Lendermarket’s investors – we are not involved in the decision process.”

By joining the Lendermarket platform, P2P lending platforms can increase their exposure to retail investors and reduce the need for traditional bond financing. Joining the platform involves a quick and costeffective legal and administrative process. Personalised marketing campaigns are available for all originators, as well as support for their next stage of growth.

Furthermore, Lendermarket’s loan originators can access the marketplace’s growing investor base. By the end of 2022, it had more than 12,000 users, and a platform value of €44m.

Prospective loan originators can contact Lendermarket by emailing partnerships@ lendermarket.com.

Hidden treasures

Innovative Finance ISAs offer stellar returns away from the stock market, yet it has never been more difficult for retail investors to source and invest in the tax wrapper. Kathryn Gaw investigates…

FOR RETAIL INVESTORS, the Innovative Finance ISA (IFISA) offers the best way to maximise peer-to-peer lending and crowdfunding returns. Yet accessing comprehensive information on the IFISA market

is confusing to say the least. Stringent regulations around marketing to retail investors have made it difficult for lenders to advertise the benefits of their IFISA products – including the marketbeating returns that a diversified

IFISA portfolio can deliver. Thus awareness of the IFISA among retail investors is still relatively low.

Even when a retail investor chooses to investigate the market, it can be difficult to know where to begin.

HMRC maintains a list of all ISA permissions, which provides a glimpse of the market in its current form. But this list doesn’t tell the whole story of the IFISA market.

For instance, it doesn’t include those P2P platforms which are using a principal company or a Platform as a Service (PaaS) to manage their IFISAs. This means that IFISA providers such as CrowdProperty – one of the largest P2P platforms in

the UK – and Sourced Capital, winner of the Peer2Peer Finance Awards IFISA Provider of the Year award, are not on HMRC’s list. Furthermore, not every company has chosen to use its IFISA permissions. Peer2Peer Finance News is aware of several sharedealing and boutique investment platforms which have maintained their IFISA permissions for the past few years while mulling a launch. At least two of these

companies are planning to formally enter the IFISA market this year.

And then there are the companies which no longer operate in the retail investor space, for one reason or another.

For IFISA-curious investors, HMRC’s ISA list could raise more questions than answers.

Technically, there are 67 IFISA providers on the market, at least according to HMRC. But a closer look at the data finds that in fact, six of these companies are either in administration or winding down, leaving just 61 IFISA providers.

Of these 61, five (ArchOver, Assetz Capital, Fluro, Funding Circle and Lending Crowd) have left the retail P2P lending market and as such, their IFISAs are no longer available for investment. This leaves 56 IFISA providers.

Another 13 have not yet launched an IFISA product, despite holding IFISA permissions. This leaves 43 IFISA providers.

Six of the remaining 43 IFISA providers do not offer IFISAs of their own, but instead use their IFISA permissions as part of their PaaS offering.

That means that among the 67 IFISA providers listed by HMRC, just 37 are currently offering their own IFISA products to retail investors.

But even this figure does not tell the whole story. The average retail investor may struggle to afford the £10,000 minimum investment required by seven of these 37 available IFISAs. Another – Bramdean Asset Management –has a £1,000 minimum investment threshold but requires evidence that investors have £50,000 of investible wealth. This leaves just 29 platforms on the HMRC list which are actually available

“ FCA regulations have made the asset class available to the wealthy only which goes against the whole equitable concept of P2P”

to the average retail investor.

However, this list does not include those IFISA providers who operate as appointed representatives of principal firms, or who use PaaS companies to manage their IFISAs. When these IFISA providers are factored in, the total number of IFISAs available to retail investors jumps to 41.

That’s a lot of research just to find out which IFISAs are available for investment.

Yet, for those investors who are prepared to put in the work, the rewards are clear.

As at the end of February 2023, a fully diversified IFISA portfolio which is spread across all 41 available IFISA providers would return an average of 8.83 per cent, according to the target returns stated for the 2022/23 tax year.

By comparison, at the end of February 2022, 39 IFISAs were open to retail investors, targeting

average returns of 7.75 per cent.

Historical research by Peer2Peer Finance News has found that actual IFISA returns over the past five years have been remarkably consistent. By the end of the calendar year 2021, average IFISA yields were at 7.8 per cent,

“It's the responsibility of all stakeholders in the industry including the press, to promote the benefits of the IFISA, as we all want an industry that people trust,” says Filip Karadaghi, managing director of LandlordInvest.

“This would also lead to

compared to nine per cent in both 2020 and 2019, and 8.73 per cent in 2018. This proves the stability of the asset class, even during times of extraordinary economic volatility.

So what can P2P platforms and other IFISA providers do to spread awareness of the IFISA and help more investors realise the benefits of the least well known ISA?

higher institutional participation and higher funding volumes through platforms.”

As it stands, it seems that in the current tax year, the majority of IFISA investments are being made by seasoned P2P investors who are transferring their existing funds from one platform to another.

The departure of former IFISA

“ It’s the responsibility of all stakeholders in the industry including the press, to promote the benefits of the IFISA”

heavyweights such as Assetz Capital and Funding Circle has left millions of pounds of IFISA money in search of a new home, and platforms such as Easymoney, Folk2Folk, Kuflink and Crowdstacker have all benefitted from the transferral of these funds.

“Our IFISA inflows have been pretty steady compared with last year,” says Chris Brown, head of lending and operations at Unbolted. “We have seen a lot coming in from Lending Works [now renamed Fluro] and Funding Circle.”

Meanwhile, LandlordInvest’s Karadaghi said that his platform has seen “lots of transfers from other IFISA providers”.

“Mostly current customers but a few new ones too,” he added. "But ISA season is just starting and it tends to heat up in March.”

Crowdstacker’s Karteek Patel said that he has seen a “small increase” in IFISA inflows, but again noted that this was largely due to the departure of big players such as Funding Circle.

Anecdotally, these comments suggest that the 2022/23 IFISA market is largely made up of pre-existing IFISA funds being moved from one place than another, rather than an influx of new IFISA money. In the current high-inflation environment, many investors are desperate for the sort of returns that IFISAs can offer – if only they knew where to find them.

Some P2P stakeholders are blaming over-regulation for making the IFISA market less accessible to retail investors.

One platform chief told Peer2Peer Finance News that Financial Conduct Authority (FCA) regulations around so-called ‘high-risk’ investments and the

new consumer duty have resulted in an IFISA market that is only available to those in the know or those with substantial wealth.

“The FCA regulations have made the asset class available to the wealthy only which goes against the whole equitable concept of P2P,” said the platform chief, who spoke on condition of anonymity.

“There is very little we can do to encourage new investors as the new wealth warnings require us to say, ‘don’t invest unless you’re prepared to lose money’.”

Paul Sonabend, managing director of Relendex, believes that over-regulation has created an environment where IFISAs are “almost an irrelevance.”

“Given the FCA gated nonsophisticated retail investors from P2P, the IFISA is almost an irrelevance,” Sonabend said.

“From Relendex’s viewpoint it is a desirable product as our investors appreciate the tax advantages they gain on their ISAs. However, there is no point in marketing IFISAs on their own to retail clients, as most responses would be from ineligible clients.”

Over the past year, some IFISA providers have raised their minimum investment thresholds in response to regulatory requirements, effectively pricing average earners out of the IFISA market. This is a trend which seems set to continue.

During the 2020/21 tax year, more than £72bn was invested in ISA accounts, but IFISA volumes made up less than £1bn of this total amount. Investors are willing and able to invest in stocks and shares ISAs which come with a risk of capital loss, so clearly there is an appetite for taking on some risk in the search for better taxfree returns. The consistent track record of the IFISA should be enough to earn it a place in every diversified investor portfolio, but the message is clearly not reaching these investors.

Platforms may be stymied by regulatory marketing requirements, but Peer2Peer Finance News is not. Share this article along with our other IFISA reporting, and help us get this information in front of the retail investors who need it. Viva la IFISA!

Every IFISA provider open to retail investors (as per 20 February 2023)

Firms with unused IFISA permissions (as per 20 February 2023)

Company name Status of IFISA offering Ablrate Company winding down

ArchOver Company exited retail P2P

Assetz Capital Company exited retail P2P

BLN Network Company in administration

CrowdCube Company has not launched IFISA

Edaid Company has not launched IFISA

Fluro (nee Lending Works) Company exited retail P2P

Funding Circle Company exited retail P2P

FundingSecure Company in administration

Goji Platform as a Service

Hilbert Investment Solutions Platform as a Service

iDealing.com

IFISA status unclear

IF MacKinnon Company has not launched IFISA

KapWealth Company has not launched IFISA

LendingCrowd Company exited retail P2P

London Court Limited Company has not launched IFISA

Madiston

LendLoanInvest Company has not launched IFISA

MoneyThing Company in administration

Monzo Company has not launched IFISA

More Lending Solutions Company has not launched IFISA

Plata Finance Company has not launched IFISA

Platform One Platform as a Service

Prosper Capital Platform as a Service

Resolution Compliance Platform as a Service

Reyker Securities Company in administration

ShareIn Platform as a Service

The House Crowd Company in administration

VCAP Company has not launched IFISA

Verus Financial Services Company has not launched IFISA

WiseAlpha Company has not launched IFISA

WM Thomson & Sons Company has not launched IFISA

How Kuflink investors drive changes at the platform

KUFLINK HAS REFRESHED its range of investor products and services following feedback from its user base, in a “collaborative” approach which demonstrates the platform’s levels of engagement.

The platform has already raised its investor interest rates, but it is now planning a roll-out of other changes following a series of conversations with users.

“We are doing a refresh on our investor products,” says Kuflink’s head of products Paul Auger (pictured).

“We are trying to stay in tune with what is going on in the marketplace with other lenders and in the generic marketplace. We’re very grateful for our investors’ confidence in us.”

As expected in the current climate, the majority of Kuflink’s investor feedback has revolved around interest rates.

“Interest rates are what investors are speaking about,” says Auger.

“We always look at making our rates as competitive as possible, whilst explaining to investors it’s still a business so by increasing their rates we could be working on reduced margins. It’s a balancing act, between what we pay to investors whilst ensuring our rates to borrowers are competitive.”

Over the past few months, a number of peer-to-peer lending platforms have raised their investor returns in response to the rising base rate. Kuflink is no exception. The property lender is now listing gross annual interest equivalent rates at 9.73 per cent per annum, up from its previous target of 8.05 per cent per annum.*

Furthermore, the platform

is expanding its outreach in key demographics.

“We are conscious that the investors of the future are the kids that are in their late teens and early 20s at the moment,” Auger says.

“The demographics of our average investor will change over time; we are noticing increased activity from younger people. There seems to be a noticeable shift towards the younger demographic, and they tend to have a different risk appetite.”

On a regular basis, Kuflink’s chief executive Narinder Khattoare chooses a few retail investors at random and calls them to ask what they want to see on the platform. The responses are fed back to the team and investor products are tweaked accordingly.

Crucially, Khattoare says he doesn’t mind hearing negative feedback, as it allows him to hear what investors really think and head off any future complaints.

“We do listen,” Khattoare says. “I want to make those changes.

We don’t have the right solutions in-house all the time, but we can bring them in. That way it’s more of a collaborative approach.”

For example, recently several investors told Kuflink that they wanted to see joint accounts added to the platform. This function is something that Kuflink is currently considering.

Investors are also interested in using their P2P funds as part of their pension plan. This has inspired Kuflink to look at new ways to manage pension funds on the platform. Kuflink is already offering self-invested personal pensions (SIPPs), but it is not actively marketing this product. Khattoare says that this could be a “good market to go into”.

“We receive a lot of enquiries around pensions and the different mechanisms that people want to use to put money into our platform,” says Khattoare.

“We are looking at whether we could take institutional pension money which would be a whole different board game.”

Over the coming months, Kuflink also plans to alter the way in which returns are calculated when loans have been redeemed. This too is in response to investor feedback.

By listening to its customers and taking a pro-active approach to user feedback, Kuflink has been able to retain an extremely high customer satisfaction level, while continuing to innovate with new products and services that investors actually want.

* Don't invest unless you're prepared to lose money. This is a high-risk investment. You may not be able to access your money easily and are unlikely to be protected if something goes wrong.

Maintaining the top spot

Folk2Folk is now the UK’s largest peer-to-peer lending platform. Managing director Roy Warren talks to Marc Shoffman about turning 10, the future of P2P and why they stay loyal to their individual lenders

AFEW YEARS AGO, Folk2Folk was a smaller player in the peer-to-peer lending sector, offering business loans in rural locations. It then changed to a nationwide strategy, which helped propel its strong growth in recent years.

The exits of the ‘big three’ brands of Zopa, Funding Circle and RateSetter, as well as Assetz Capital’s more recent departure from the retail space, has now launched Folk2Folk to the top of the P2P loan book ladder.

It is now the largest retail-focused P2P lender, with a cumulative loan book worth almost £600m.

Folk2Folk’s Roy Warren has become one of the longest serving P2P executives in this everchanging sector, having joined as portfolio manager at the platform in 2015 before becoming managing director in 2019.

He explains why staying loyal to retail investors is key to the platform’s success.

Marc Shoffman (MS): How does it feel to be largest retail P2P lender?

Roy Warren (RW): I don’t concentrate on being number one. I always feel it is best to continuously improve our own business. It’s nice to know what other people are doing but our key focus is on being better than yesterday.

MS: What are you doing differently?

RW: From a company point of view, we pride ourselves in doing the right thing and have a great deal of loyalty to our investors. Last month we turned 10 years in existence, we have got to where we have today through our loyal high-net-worth investors, that’s where our loyalty lies.

That’s why we are not pulling out of the retail space. It is easy to throw it away and go to institutional funding. It would be an easy life, especially with increased regulation around retail and fear of further constraints. The retail space is easy to run away from but why should we deprive high-net-worth individuals of the choice? That’s the key thing.

Folk2Folk in numbers

Launch date: 2013

Cumulative loanbook: £592m as of 20 February 2023

Loan type: Business loans secured against UK land or property

Interest rate: 7.5 per cent to 9.5 per cent

Minimum investment: £20,000

Minimum loan size: £100,000

MS: Why do you think other platforms have left?

RW: People have feared what the Financial Conduct Authority (FCA) will come up with, we have anticipated that for a long time. Running into the arms of an institutional investor is a dangerous place to be in, as you are losing control of your business. We have had discussions about large institutional funding lines but they would end up running us. We are open and encourage people to come forward, but it is getting the terms right.

MS: How has the sector changed during your time at Folk2Folk?

RW: The bank appetite has waned somewhat. We have gone through different peaks, 18 months ago we were seeing far better-quality credit driven towards us. Now we are getting into a space where banks are saying “go away” and we are getting loan applicants where we need to be careful not to take on someone else’s problem.

We are still taking a very heavy stick approach to our lending. Most our assessment is manual and we don’t leave it to algorithms to say yes or no. Naturally we are cautious. Our particular area of caution is property development, probably the worst scenario is to be in a partially completed development situation. Looking at previous downturns, that’s usually hit quite hard.

MS: What is investor and borrower sentiment like?

RW: Investors are changing their view on life a little bit. Our offering is interest-only for a fiveyear term. Because of the more volatile interest rate environment, people have got an appetite for shorter terms and higher rates.

If we have a 12-month loan for 8.5 per cent it will fly off quicky but seven per cent for five years would be hard to move on. There is appetite for short-duration loans. As soon as we come out with opportunities they get snapped up.

Our business model is pure pass-through from borrower to lender. We make our money from an upfront borrower fee of two per cent and an annual fee of 1.75 per cent to maintain the loan to the borrower.

There is still a healthy appetite for loans. We hear that we are still competitive.

MS: Do you have an IFISA target?

RW: We are hoping to attract as much as we can. We always make a bit of noise towards the end of the tax year.

MS: How do rising interest rates affect you?

RW: Whilst we traditionally haven’t been linked to base rate, now it’s coming to sharp focus, we have to follow the trend upwards as our competitors are doing that.

I don’t think the downturn will be as severe as first though. Wholesale gas prices have come down and while we are not seeing the benefits yet, we hopefully will do.

People don’t allow us to be down for too long. It is businesses that drive the economy, many companies are in a position to invest and develop.

MS: How is the regulatory environment for P2P lenders?

RW: It is extremely challenging. I don’t think the FCA will go to the extreme view of saying no retail funds in P2P lending. We have gone through the recent consultation with the FCA so had a sense of what was coming, we have always as a business erred on the side of caution.

Changes in terms of financial promotion rules and the consumer duty haven’t been onerous. We have had to do some development to our technology.

The timing has worked as we have been working on a new loan management system and already had an online appropriateness test so just had to build it out further as there are additional requirements to make it harder and to make multiple versions. The important thing is doing the right thing, for borrowers and lenders.

MW: Is it still possible to make money from P2P lending?

RW: I think there are opportunities, if people have the appetite, and with threat of increased regulation.

Being a regulated business isn’t cheap, there is quite a premium to get licensed and to operate, we are seeing continued consolidation and I’m sure it will continue.

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 between 7.5 and 9.5 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 £220m on clients' behalf and has repaid over £140m 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 £25m and paid more than £1.7m in interest to lenders to date. Investors can enjoy returns of up to 10.29 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 £245m 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 9.73 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

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

SERVICE PROVIDERS AND INDUSTRY ORGANISATIONS

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“At Lendwise, our goal is to make it easier for aspiring individuals to pursue their postgraduate education or professional qualification studies.

We are excited to bring this social impact investment market through our peer-to-peer lending platform which allows our Lenders to amtch their investment requirements with available loans.”

- Rishi Zaveri (Co-Founder & CEO, Lendwise Ltd)

“Lendwise has a very quick and responsive team on board. The AutoLend feature is an incredible tool which helps to diversify our investments.

- William (Lendwise Lender)

“Lendwise is a great way to combine an ESG investment which helps in the postgraduate education of the next generation whilst Lenders receiving an attractive return on their investment.”

- Andreas (Lendwise Lender)