Peer-to-peer lending platforms need to prepare for an upcoming recession caused by the coronavirus which could be worse than the 2008 financial crisis, an insolvency expert has claimed.
Frank Wessely (pictured), partner at business advisory firm Quantuma, said that the world is in a “unique” situation and predicted that the speed of the economy’s subsequent recovery would be dependent on government support, as well as the return of confidence once the virus subsides.
With regard to the P2P industry, he said that the priorities for platforms at the moment are the liquidity of their loanbooks, making sure they are operating profitably with positive cashflow, and sending positive messages of reassurance to investors and the wider marketplace to boost confidence in the sector.
He urged firms to maintain high levels of compliance, given an increased focus from the Financial Conduct Authority on the sector.
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“What the market is going through is simply a reflection of these strange and unusual times we’re operating in,” Wessely said.
“There is always more that can be done but it’s important platforms focus on the fundamentals at the moment.
“They are in competition as an asset class and need to ensure the message gets out to show the attractiveness of P2P remains as visible and audible to the investor community as possible.
“I think it’s important as any business in any sector, to maintain a positive outlook and I’m sure these ripples affecting the sector are just temporary.
“There will be a return to normality when the wider economy does.”
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Wessely added that platforms with bigger resources would undoubtedly be better at communicating these messages, with smaller platforms likely to focus on their existing customer base.
Wessely said he also believes platforms are staying in regular contact with their borrowers to ensure repayments are collected on time and are dealing proactively with borrowers impacted from the pandemic.
Looking at the UK economy more generally, Wessely said there is the potential for insolvencies this year but these depend upon a number of factors such as how quickly HMRC can get systems in place to provide the financial support, and the attitude from supply chains of businesses.
“When you have many people in same boat, they’ll think, what’s the point in us liquidating to get money, it’ll put customers under and their revenue stream will disappear,” he said.
“If businesses are prepared to wait and support each other for at least a month or two we’ll have a much better idea of whether they’ll be a high number of insolvencies.
“At the moment most of what we’re doing is advising rather than formal insolvencies.”