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Author: Sacha Bright & Oliver Murphy
The Peer-to-Peer (P2P) industry faces a challenging time ahead. With a brewing economic downturn in the wake of the coronavirus pandemic, many lenders are citing a high volume of investors trying to withdraw their cash while platforms are seeking access to government schemes to help them keep lending.
As the UK’s alternative finance aggregator, we have charted the decisions and actions taken by the main P2P lenders and how they have responded to the damage inflicted by coronavirus.
In response to the growing financial uncertainty posed by Covid-19, NextFin has learnt of a number of measures that Funding Circle has implemented to protect investors’ returns on its platforms.
In a statement issued by Funding Circle’s Chief Risk Officer Jerome Le Luel, the company says it “has the right tools to navigate the coming months… We are the best-capitalised lending platform in Europe.”
He added: “Importantly, we are also able to make decisions that prioritise protecting investor returns over short-term commercial interests.”
As part of its aim to mitigate the economic impact of coronavirus, Funding Circle has now introduced the following measures:
Tightening of credit risk parameters
In response to the current environment fostered by Covid-19, Funding Circle has decided to take a “prudent” approach and has extended the tightening of its lending first introduced in 2019.
It has also strengthened its criteria for businesses from “vulnerable areas of the economy.”
As well as this, the platform has adjusted its pricing - taking into account how the economy may perform - to maintain projected returns for new loans at current levels and is focused on “originating loans” expected to remain resilient during the current uncertainty.
Enhancement of risk monitoring
Funding Circle has now heightened its focus on changes in both its loan book and the wider environment.
By regularly analysing data from more detailed insights, it is claimed that should the time arise, the platform is ready to make “rapid” and “effective” adjustments to its credit parameters if necessary.
Strengthening of collections and recovery capability:
The platform has also dedicated extra resources to its Collections and Recoveries team to support the businesses that are receiving loans through it. This will be in the form of maintaining monthly repayments over the long term.
Funding Circle has also announced measures to ensure that portfolios are well-positioned to deliver “resilient returns”.
Minimising avoidable credit losses
Flexibility will be offered in the short term through the use of payment plans which allow businesses to reduce or have a temporary break from their repayments and help them maintain their monthly repayments over the term of the loan.
Continuing to build resilient portfolios
It is believed that in the future, Funding Circle may need to adjust the Transfer Payment paid from the seller of the loan part to the purchasing investor.
The Transfer Payment goes to the buyer of the loan - rather than Funding Circle - which the platform says will help to ensure investors continue building resilient portfolios. The Transfer Payment will be reviewed on an ongoing basis.
NextFin approached Funding Circle to ask if it felt the government could be doing more for P2P lenders in the current climate.
A spokesman offered the following statement:
“We hope to become accredited by the British Business Bank so that we can offer CBILS loans. This will mean we can provide further support to affected businesses.”
Assetz Capital has itself responded to the Coronavirus by providing forbearance to borrowers during the Covid-19 pandemic.
In a vote of platform investors, the site reports that investors “overwhelmingly” voted to provide relief and to extend loans for an initial three months.
In a statement, Stuart Law, CEO of Assetz Capital said: “We want to do the right thing in this difficult time and provide businesses support.”
He added: “It’s in our lenders’ interests to do everything that we can to support borrowers through this period.”
Assetz Capital said that it asked lenders to vote as it estimates borrowers directly employ or have sub-contract relationships with 100,000 individuals.
According to their website: “At this critical moment of the pandemic, therefore, there is a significant part of the UK’s GDP dependent on Assetz Capital and you, their Lenders, treating them fairly and supportively and standing by them until this terrible period has passed”
It is believed that most borrowers will still have to pay their interest on the three-month extension but will not need to send their money at the present time. It will accrue on loans for eventual repayment at a later date.
Asked if the government could be doing more for P2P platforms and their support of small businesses, Law said: “the government will need to step in and provide whatever support it takes.”
Zopa has told its borrowers that they can request a payment freeze if they are struggling to meet repayments.
The platform used its website to appeal to borrowers who are concerned about the impact of Covid-19 on their loan.
In a statement, Zopa said: “We’re living through troubling and uncertain times, and we know that lots of you are concerned about the impact of Coronavirus on your finances.”
The platform has also offered assurances to investors, suggesting that the volatility across the stock market is not something it expects to see replicated to the same extent in its investment performance.
Unlike other platforms, Zopa says that it offers investors a portfolio of loans over fixed terms and this is how it has been able to deliver positive returns in downturns and upturns.
The platform added: “While this is an unexpected situation for everyone, we believe we have the experience, the tech and the people to adapt quickly and make the changes we need to continue to serve our customers through this uncertain period.”
Zopa has also stopped lending to borrowers in higher risk bands in its latest response to coronavirus. It said it would reevaluate its decision as it gets more information on the response of borrowers to the pandemic.
Like many businesses, Ratesster has followed government advice and is letting staff work from home where possible.
Investors and borrowers can still contact platforms on email and by phone.
RateSetter has said it is focused on servicing Innovative Finance ISA (IFISA) demand despite the coronavirus outbreak.
The lender said that although the pandemic coincides with the busiest time of year, its service levels will not be affected, but has urged borrowers to get in touch if they are concerned that they may not be able to make repayments.
However, It’s asking the Bank of England (BoE), as well as the country’s treasury, to give it access to stimulus funds so that it has liquidity for banks.
“There are established schemes run by the BoE that pump liquidity into the system in the event of these situations,” said Rhydian Lewis, CEO of RateSetter. “Now that P2P lending is fully regulated, this is a conversation we need to have.”
Disclaimer:
To the best of our knowledge, the information we have provided is correct at the time of publishing. SEIS and EIS tax benefits are dependent on your financial circumstances. Sacha Bright is not a solicitor or accountant and we recommend that you seek professional advice on any topic discussed.
Risk Warning:
Investing in equity crowdfunding and early-stage businesses involves high risks, which may include long-term investment horizons, illiquidity, lack of income and potential dilution. Any investor needs to be in the position to afford a total loss of capital invested.
NextFin is targeted at members who have the knowledge and experience to understand these risks and make their own investment decisions. You will NOT invest through NextFin but through the relevant crowdfunding website which also has signed off the content as a Financial Promotion on its own website. NextFin is not the originator of the financial promotions that appear on its site. However, we do to the best of our ability carry out limited compliance checks on the originator and the company seeking funding to ensure they are conforming to FCA regulations and anti-money laundering equity/requirements as appropriate. Business Agent Limited, trading as NextFin, takes no responsibility for this information or for any recommendations or opinions made by the companies or its users. Click here for our full risk warning.
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