Join the crowd
P2P aggregators are a growing trend, offering consumers access to multiple platforms at the click of a button. But is there a real need for this service or is it moving away from the essence of P2P?
For savvy consumers, shopping around for the best deal is a key part of the decision-making process. The rapid rise of cashback sites, review sites and price comparison websites shows that there is a clear demand for aggregator services which can help guide retail investors towards the products and brands that are right for them.
With this in mind, it’s hardly surprising that there has been an influx of new aggregator platforms which are specifically tailored towards the peer-to-peer sector or the wider alternative finance space.
Over the past two years alone, a plethora of new names have emerged offering to match curious investors with P2P platforms and vice versa. Goji, Bud and OFF3R are just three of the aggregator brands currently wooing retail investors, while fund supermarket giant Hargreaves Lansdown is in the process of building its own P2P platform and has refused to rule out the possibility of becoming a P2P aggregator itself.
By appealing to the sort of tuned-in consumer who is used to comparing financial products, P2P aggregators could open the sector up to a whole new world of retail borrowers and lenders, bringing alternative finance into the mainstream. Yet there is still some hesitation within the sector. For many established P2P lenders, the idea of putting any extra distance between them and their users flies in the face of the P2P philosophy.
“We’re agnostic about the concept of P2P aggregators,” says Ceri Williams, who works in investor operations at RateSetter. “It is already very easy and simple for investors to deal with platforms directly.”
A question of cost
A number of platforms told Peer-to-Peer Finance News that they were particularly concerned about the possibility that aggregators could add in any extra fees for their customers, as their business models are based around cutting costs compared to conventional lenders.
There is also a sense that aggregators are creating an unnecessary extra step in the P2P process. The idea of P2P lending came from a desire to cut out the middlemen. The fear now is that these aggregators could end up increasing fees, while mis-directing lenders and investors. However, Lex Deak, co-founder and chief executive of alternative finance aggregator OFF3R, denies that aggregators will change the way that crowdfunding works.
“Ultimately it’s the same thing – it’s direct investing,” he says. “At a time when interest rates are at an all-time low, at a time when investor demand for yield is at an all-time high and at the time when noise is at an all-time high – there is a need for a single channel to compare and contrast neutrally.”
It goes without saying that crowdfunding and P2P lending can vary massively in their remits. This creates a huge challenge for aggregators such as OFF3R, who promote an array of different types of alternative finance products, with different risk profiles and projected returns.
“It’s a different assessment method for each asset class and it’s a challenge for us,” admits Deak. “The alternative space is maturing but it’s still in its early stages. In these asset classes there is no standardised model in the way that there is in e-commerce.
“You have to chunk things together to some extent,” he adds. “If it is a loan-based opportunity you need to let people know what the risk is. What level of security is there? What priority do you have in case of a default? What is the default record of your issuer? Do they have a provision fund? If the loan is secured against a property, is that property in an area that’s likely to see some volatility and how much margin is there for that loan?”
For fintech newcomer Bud, their business strategy is about drawing in customers from all edges of the financial landscape and keeping them there by offering a huge range of different products, including P2P.
“We say internally that we’re a bit of a mix of a comparison site, a banking app and a search engine,” says Jamie Campbell, head of customer experience at Bud. “We don’t want to be classed as a comparison site as we don’t compare products on price, we compare them on service.
“Our target customers are younger professionals who are quite familiar with technical problems. They are people who are probably moving from savings to investing and are on the cusp of that transition. People who have a number of financial products already, whether it be credit cards, bank accounts, insurance, mortgages or pensions. They would benefit from an experience which brings them all together but also want to learn more about the options that are available to them.”
Goji, on the other hand, is almost entirely devoted to P2P lenders, comparing them on product type, risk mitigation, debt holdings, minimum investment and, of course, projected returns. Customers simply log on, create a risk profile and choose the product that they like best.
“I think aggregators make things a lot easier especially when you’re seeing so much unbundling in fintech,” says Campbell. “There are lots of great services but if you want to take advantage and know about all those companies that are out there it’ll take you ages. That’s what aggregators do well.”
The key thing to bear in mind is that these aggregators – thus far, at least – are merely acting as an introduction service for P2P platforms. It is not yet possible to spread one investment across a number of different platforms, unless of course you choose to invest in a P2P-focused investment trust. In a way, this reduces the risk to the investor as they still have the freedom to choose the P2P brand (or brands) which matches most closely to their investment needs. In this scenario, the only difference between the direct P2P customer and the aggregator customer is their point of entry. What’s more, the aggregators don’t tend to charge any fees for P2P companies to list on their sites, instead taking an ‘introductory fee’ each time they convert a user.
This means that for most P2P platforms, joining an aggregator site is cost-effective and potentially quite profitable.
“We welcome the innovation and the potential to open up the market to new investors and will continue to monitor and be involved in developments whilst we observe the benefits that we hope will result from it,” says Stuart Law of Assetz Capital. “We are engaged with a number of these aggregators and have done so to better understand what value they will deliver to investors above and beyond the process of dealing with individual platforms.”
For the aggregators, future success depends on whether or not they can convince more platforms to get on board. If they succeed, the benefits could be huge, for everyone involved.
“It’s inevitable that whenever there is a fragmented and confusing number of offerings in the market, there will be a need for aggregation and when people are investing their money they will want tools that are impartial,” says Deak. “It’s not just about saving their time, it’s about making sure that its coming through the right sources.
“They need to be told what to do because there’s so much choice. We don’t want to be giving advice but it’s inevitable. It’s becoming more mainstream, and independence is key.”
Campbell agrees. “We’re always looking for more partners,” he says. “The more partners that you have the more likely it is that people will find the thing that’s right for them.”
Ultimately, the success of P2P aggregators will come down to consumer demand. As rising inflation and falling interest rates continue to push savers away from traditional bank accounts and towards the world of investing, the appetite is certainly there, but there is a world of difference between using an aggregator to choose a home insurance product or a cash ISA, and using it to invest upwards of £1,000 through P2P.
The UK’s P2P platforms have worked hard to educate the public on the risks involved in P2P lending and how it differs from other types of investing. In December, the Financial Conduct Authority proposed tighter regulations across the P2P and crowdfunding sectors, making risk awareness and investor education the highest priority for P2P platforms.
While aggregators may be able to tempt big brands with fee-free structures and wide investor networks, they will face an uphill battle when it comes to complying with each platform’s individual risk requirements. However, as the alternative finance sector grows, so too will the need for neutral services which can help drown out the noise and guide consumers down the right path, whether that means investing in P2P platforms or not.