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Peer2Peer Finance News | January 18, 2019

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Natural evolution

Natural evolution

Stuart Lunn, co-founder and chief executive of peer-to-peer business lender LendingCrowd, explains why there is a place for both active and passive investing in P2P

THE ACTIVE versus passive debate was thrown into the spotlight recently when Funding Circle withdrew its manual lending option, meaning that the big three peer-to-peer providers now purely offer passive investment products.

Critics argue that P2P has moved away from its roots, while others say passive investment products are essential to bring the sector into the mainstream.

Stuart Lunn, co-founder and chief executive of Edinburgh-based P2P business lender LendingCrowd, sees the benefits of both.

“For P2P investing to become truly mainstream, it’s essential to simplify the products on offer and enable greater comparability between opportunities,” he asserts.

“Passive products force greater diversification and I think that will benefit the sector as a whole.

“Furthermore, these types of investments are more likely to be adopted by intermediaries such as independent financial advisers and wealth managers, which will also boost mass market adoption.”

With all these advantages, is there still a place for manual lending? Lunn thinks so.

“If you consider the stock market, many investors enjoy stock picking but also have money in passive funds,” he explains.

“Similarly, many of our investors like using both active and passive products.

“Active investors may become a minority, but they’re still an important group of customers.”

LendingCrowd offers both active and passive investment opportunities on its platform. Investors who choose the manual option can select transactions based on their individual risk tolerance, sector and geographic bias, as well as setting their own interest rates through an auction process.

This gives individuals control over their portfolios, but it can also be time-consuming.

Furthermore, if capital and interest are repaid monthly, uninvested cash can build up quickly, creating a cash drag on returns.

With the automated option, investor funds are lent out automatically without having to choose individual investments. This is a quicker, more convenient method and gives an automatically diversified portfolio as the platform spreads the money across a wide range of loans.

Repayments may also be automatically reinvested, eliminating the risk of having uninvested cash in
your account.

In February, LendingCrowd launched its Innovative Finance ISA (IFISA) with a passive account and in May it launched its Self Select ISA, meaning that investors can now choose either type of investment within the tax wrapper.

The passive Growth ISA offers target returns of six per cent, while active investors can set their own rates with the Self Select ISA.

“Around three quarters of our new investors from the past three months have chosen the passive product and with the ISA it’s even more heavily skewed than that,” says Lunn.

“A lot of ISA investors are new to the sector so go straight to the passive option.

“The ISA is a mass-market product. If the P2P industry is going to get a meaningful slice of that market they need to offer passive investments.”

Passive investment may be the natural evolution of P2P, but for some experienced investors, manual lending will always be the preferred option.

“Either way, it’s individuals owning their own portfolio and driving the economy through lending to
businesses,” says Lunn.

“Our passive product is as much P2P as our manual one.”

For more information on Lending Crowd and its IFISA, go to