A number of peer-to-peer investment aggregators have shut down in recent years, raising the question of the model’s viability.
These firms entered the market offering P2P investors greater diversity and an easier process, by spreading their money across a variety of platforms.
But some industry onlookers have been sceptical about their advantages, while new regulations could make the model even more challenging.
This week, it emerged that Orca had shut down its investment aggregator platform to retail customers.
Chief executive Iain Niblock said the new Financial Conduct Authority (FCA) regulations made it harder to operate as it was difficult to complete the new affordability assessments on behalf of each investor.
Orca’s wind-down follows the closure of BondMason’s and Goji’s P2P aggregator offerings last year and LendingWell in 2017.
Until a year ago, Goji offered an aggregator model that invested across a number of direct lending platforms. However, the firm has pivoted its focus towards white label technology and ISA administration services.
David Genn, chief executive of Goji, said that question is what value the aggregator can provide for investors.
“If all that an aggregator is doing is putting me onto investment platforms I could have already invested on, what am I paying for?” he said. “Whereas if it allows investors to access products they couldn’t previously get access to, that makes a lot of sense and I think there’s a lot of value there.
“I don’t think the rule change impacts the validity of the aggregator model. I think the question remains the same, what is the value the aggregator model offers to investors?”
Notably, InvestUp still operates a P2P investment aggregator model, but it has witnessed the impact of regulatory changes with regard to investor marketing restrictions and appropriateness tests.
Users are now required to identify themselves as high net worth, sophisticated or restricted investors.
“Having these three types of lenders on a platform creates complexity for aggregators,” said Kieron Greeff, operations manager at InvestUp.
InvestUp has delayed the launch of its CrowdISA – a multi-platform Innovative Finance ISA – until the second quarter of 2020. Peer2Peer Finance News understands that this was due to concerns that the FCA’s recent mini-bond marketing ban would damage perception of other alternative finance products.
However, Greef added that InvestUp is still expecting to expand the business.
“We took a knock with Lendy, but also evidenced that our model helps mitigate platform risk,” he said.
“We’re looking to integrate with more P2P lending platforms in the coming months.
“Customer numbers a growing but slowly. The new regulations are helpful to aggregation platforms in my view because they have helped to elevate standards across the industry.”
Gillian Roche-Saunders, partner at compliance consultancy Adempi, said that the new rules have made aggregator models more difficult to operate but they will still survive.
“While aggregation can be incredibly useful for investors looking for diversity without having to constantly review their portfolio, it brings with it a level of opacity and complexity that the regulator sought to address in the new rules,” Roche-Saunders said.
“The consumer demand for aggregation means that it will still be around for some time but firms in that space can expect higher standards to be applied to them.”
Mike Bristow, chief executive and co-founder of P2P property lender CrowdProperty, said the big question is whether aggregators can make their cost of acquisition versus customer lifetime value work, as they are taking a small slice of a concentrated spend for an investor.
“It’s not only education about alternative finance and P2P that’s needed, but also education on the proposition of these aggregators and that’s a complex sell in a market that’s still maturing,” Bristow said.
“Established alternative finance players are competing for the same customers and therefore cost of acquisition is high.”