The case for manual lending
Stuart Law (pictured), chief executive of Assetz Capital, argues why manual lending should remain an important part of P2P
By its very nature, peer-to-peer finance should be in every way more transparent than the traditional banking market has come to be defined.
By stripping it down to the basics – matching lenders with credit-worthy borrowers – P2P came at a time when the clunky and complex banking system needed to be overhauled. And it did so in a number of ways simply because it had to make drastic improvements to the status quo.
The collapse of the banking industry as we knew it was partially due to the layers upon layers of complexities that were added over the years, creating invisible risks between borrowers and their funding. The banking industry was built upon trust – trusting that the banks could make sensible decisions for their customers, and that any lending, saving or investment was made as risk-free as possible by their rigorous processes, meticulous due diligence and appropriate reserves to protect against losses.
As the trust eroded, the P2P industry started to emerge. The simple proposition, initially, was to give people as much transparency as possible and to be able to invest directly in the new asset class of loans. Integral to this for many investors was manual lending; giving people that wanted it the ability to have control over their investments by picking the size, industry and location of where their money is invested. For many people, it’s not just about transparency, it’s about being able to invest locally, to decide if they like a loan and borrower or to choose to support businesses operating in sectors that they know a lot about, or are passionate about, such as renewable energy.
This is the power of the transparent P2P model. However, when the option of manual lending is taken away, a very important segment of the P2P investment community could become disenfranchised, the very group on the whole that supported the industry in the first place.
Some may argue that in order to grow, the P2P market needs to be made easier for everyday investors. We feel this belittles sophisticated investors, who continue to play an integral part in the P2P market’s success, and it also will fail to capture many new investors because it relies too much on trust in the platform to select and vet borrowers. It’s a risky move indeed as it could weaken investment demand and hence supply of funding through platforms. In addition, if the large platforms remove the option to select loans manually, it appears anecdotally from investor forum chat that investors are considering going to some smaller and newer platforms that still permit it, another potentially risky move if those platforms are not fully proven yet.
We feel that manual lending needs to remain an option for investors. While many current P2P investors love it because it empowers them, it remains a compelling differentiator for our market. Nonetheless there are risks that investors need to be educated about, such as the need to diversify across many loans and the need to have knowledge and skill if attempting to pick out “winning” loans on a platform. This won’t be for everyone and people could make losses as a result of these two areas. Nonetheless, we feel this isn’t enough to remove the option of manual lending.
The strategy to offer automated diversification across many loans and indeed the simplification via automation for investors that are time-poor is a valid one for many investors but they are only one segment of the market – just look at the £22bn that was invested in the more sophisticated stocks and shares ISAs last year versus the £39bn invested in simple cash ISAs.0
Read more: Autobid vs manual: Which is truly P2P?
Regardless of our support for manual lending, Assetz Capital was – to our knowledge – the first P2P platform to offer automatically-diversifying investment accounts. In the long term we expect automated diversification to become the industry norm, but we hope that it will not be at the expense of the manual lending option.
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