THE COLLAPSE of peer-to-peer pawnbroking platform and property lender FundingSecure has rattled an industry that was still reeling from the closure of Lendy earlier this year.
FundingSecure went into administration with approximately £80m in loans and 3,500 investors. While the reasons for the platform’s failure are not yet fully known, several P2P platforms have spoken up to express sympathy for investors, and to point out that FundingSecure’s business model is not representative of the wider P2P community.
Peer2Peer Finance News has spoken with a number of industry experts to gauge their reaction to the FundingSecure news.
“This shouldn’t be taken as a reflection on P2P as a whole,” said Angus Dent, chief executive of ArchOver. “There are, irrespective of size, some very good P2P lenders, who are compliant with both the spirit of P2P and the spirit and strict legal form of the regulation.
“It’s natural for any new sector to go through a period of rapid selection, the weeding out of the weak and the survival and strengthening of the strong. Being big doesn’t make you strong and being small doesn’t make you weak, it’s more about attitude than size.”
Crowdproperty’s co-founder Mike Bristow noted that P2P platforms exist on a spectrum, and urged would-be and existing investors to do their own due diligence before committing their money.
“First and foremost, it can be a deeply worrying period for lenders, investors and employees when a platform enters administration which is extremely disappointing to see,” Bristow added. “This however is not a systematic issue with the sector, neither for P2P nor specifically within property P2P, highlighted by those approaching the sector as it should be.
“In any sector, there is a spectrum of operating practices. This is often exaggerated in maturing sectors. CrowdProperty has the asset-class expertise, robust systems and processes, clarity of strategy, operating best practice, security positioning, transparency, workforce incentive structures, independence and motivations to build a long-term, sustainable, class-leading business in this space.
“Cream rises to the top, of which, on the strategic level, there are many such examples across many sectors. Lenders should do thorough research into platforms.”
RateSetter’s spokesperson echoed this view, stating: “This is simply Darwinism in action – naturally, businesses that are badly run or have weak business models simply do not survive long.
“Tighter regulation will speed up the exit of sub-standard platforms in our sector, ensuring that well-run P2P platforms that put the customer at the heart of their model will endure and grow.”
On 9 December, a new set of regulations will come into effect, which will require each UK-based P2P lender to abide by a number of rules as outlined by the Financial Conduct Authority (FCA). These rules include the creation of a detailed wind-down plan in case of administration.
FundingSecure – like Lendy – had received full authorisation by the FCA. The FCA has yet to comment on the reasons behind the platform’s closure, instead directing concerned investors towards the appointed administrators, CG Recovery.
“What’s notable is in what [the FCA] did not say,” said Neil Faulkner, co-founder and chief executive of 4th Way.
“It did not indicate that it had identified any issues with FundingSecure’s wind-down plans. It didn’t say there was an issue with FundingSecure’s segregated pot of money to ensure a smooth wind-down, which is a regulatory requirement. And it did not say that it had concerns about the peer-to-peer lending contracts, which ensure that the end borrowers still owe investors directly, even after FundingSecure’s closure.
“At this stage, it therefore looks most likely that investors can still expect to get all or most of their good loans back. Just as if FundingSecure was still in business, investors will still lose money on bad debts – the risk taken when investors do P2P lending.”
Meanwhile, asset-backed P2P lender Ablrate pointed out that smaller platforms need to focus on technology and vision in order to avoid a similar fate to FundingSecure.
“Those who say that ‘smaller platforms’ cannot compete with larger platforms might be right in circumstances. However, we are investing in our technology and our vision that would allow platforms to enjoy a large ecosystem that can rival even the biggest platforms,” wrote David Bradley-Ward, chief executive of Ablrate, in a blog post on the company’s website. “Any larger platform should realise that we were born in technology and we will grow in technology. Making an assumption that big companies are the only ones who can deliver that has been proved wrong many, many times.
“Bottom line is that we are believers in the P2P space, we think that this is period of consolidation that will see us move into a better space as procedures are solidified and tested, and technology is used to make P2P lending safer, more streamline and mainstream.
“While platform failures are a real problem and the funds lost are to be taking very seriously, these failures are inevitable in a new industry. What we have to do now is evolve procedures bring in more and better tech and learn from the lessons being learned. Ablrate is committed to this path.”
4th Way’s Faulkner advised investors that if they want to greatly reduce their chances of seeing a platform that they lend through close down, they should only lend money when they are given a huge amount of information about the key people, lending processes and loans.
“Transparent platforms tend not only to survive, but also to provide better investing results,” added Faulkner.
“The vast majority of investors in P2P lending have made, and continue to make, stable and highly satisfactory returns.”
Read more: FundingSecure investors: What happens next?