There are still opportunities for peer-to-peer platforms despite the pandemic, says Duff & Phelps’ Geoff Bouchier and Mark Turner…
There are unprecedented and stressful times for the financial markets. But for peer-to-peer platforms, there are still a few opportunities, even amid a pandemic. “It’s certainly not all doom and gloom for the P2P sector,” says Duff & Phelps’ Geoff Bouchier (pictured, left), managing director, London restructuring advisory practice.
“A month ago, it was a bit uncertain how the marketplace would adapt and deal with the pandemic, but it’s pleasing to see market participants responding and adjusting as necessary. The P2P sector seems to be rather robust in that way.”
Duff & Phelps is the world’s leading independent valuation adviser, so it is comforting that both Bouchier and his colleague Mark Turner (pictured, right), managing director in the firm’s compliance and regulatory consulting practice, can see the value in P2P lending at this time. Having worked with a number of UK-based P2P platforms, they are well aware of the risks and challenges facing the sector and the increased regulatory focus and oversight.
But they also see how P2P platforms can benefit from current market conditions. “Like other specialist finance providers, P2P platforms are currently in a period of adjustment and are adapting to the current situation which will last for some time,” says Bouchier. “It may result in increased costs because of that transition.
“But it could also be a good time for platforms to raise both additional equity and lender capital – from retail and/or institutional investors. The coronavirus has caused a significant reduction in equity market values and therefore investors are considering where to allocate capital to earn a decent return. P2P is still a very interesting and attractive investment for these investors.”
It is expected that P2P platforms will see an increase in loan applications from small business borrowers as the crisis continues. That will increase further for P2P platforms who have received British Business Bank CBILS lender approval. But it is important that P2P platforms “don’t become a lender of last resort and increase their risk of bad debt or loan impairment,” Bouchier adds.
“Shortly prior to the pandemic, the regulator signalled its increased focus on this sector, particularly around dusting off and updating existing wind-down plans, and it is expected that this will be closely monitored throughout the pandemic and after,” says Turner.
Neither Turner nor Bouchier expects the coronavirus pandemic to lead to widespread consolidation in the P2P sector, although they point out that those with depleted capital reserves may be in for a bumpy ride. “If a platform is facing a short-term liquidity problem, but the track record is there and the viability of the platform remains, then there should be no need to trigger a wind-down,” says Bouchier.
For those platforms worried about having to implement their wind-down plans, Turner and Bouchier have some advice: review your financial performance and future projections; consider raising additional capital or delaying capital redemptions; communicate with your stakeholders; and seek professional advice.
As a multi-discipline advisory practice, Duff & Phelps is already working with several platforms on a variety of matters, from valuations and fundraising to advice on regulatory matters and assistance with borrower defaults and loan enforcement recoveries.
As the full economic impact of the pandemic is still unknown, platforms should stay in close contact with their professional advisers to ensure they receive the support and any necessary assistance so they can survive, and thrive, in 2020.