Platforms should invest now for post-Covid growth
Chris Laverty, partner and head of financial services restructuring and insolvency at Grant Thornton, outlines post-Covid opportunities for peer-to-peer lenders
Peer-to-peer lending platforms should start planning now to take advantage of post-Covid opportunities, which includes setting up stable funding lines, identifying specialisms, and refocussing their loan portfolios to take advantage of acquisition opportunities.
According to Chris Laverty, partner and head of financial services restructuring and insolvency at Grant Thornton, there are investors on the lookout for new opportunities to make inflation-beating returns and this represents an opportunity for those platforms that can demonstrate clarity of offering, good governance and market related returns.
“For a P2P lending platform, there can be significant opportunities as normal high street banks continue to face a level of pain through defaults in the short-term future,” says Laverty. “This may mean that there will be less money available in the retail banks, and alternative lenders may step in to provide the return that investors want.”
But not all platforms will be starting from the same place. And in order to attract new investors and take advantage of these post-Covid opportunities, some platforms may need to make changes. “You have to look at what the activity level of the P2P lending platform has been during the time period,” says Laverty. “Have they actively brought borrowers onto the platform? Are their investors still seeking and obtaining a return from the platform? Or has the platform had to, in some way, restrict that lending because of the impact of Covid on some borrowers?
“If that is the case, has the performance of the borrowers affected the investor base of the P2P platform? Have the investors stayed with that platform and are they comfortable with risk/return outcome?” P2P lending platforms have plenty of experience working with borrowers and managing their default rates, and this has been particularly evident during the pandemic. But platforms also need to acknowledge the changing macro-economic environment and be prepared to adjust their portfolios accordingly.
“Pre-Covid, they may have specialised in residential development opportunities, commercial development opportunities or other business lending opportunities,” says Laverty. “But this could change post-Covid to manage risk and support returns to their investors.
Stakeholder support will be vital to ensuring the future of P2P platforms, she adds. When discussing future opportunities with P2P clients, Laverty asks: do you have debt funding, or do you still have equity investment? Are these equity investors represented on your board and are they on board with your platform’s future plans?
These plans may include some M&A activity, or even a partial run-off of the platform’s portfolio. However, as these plans develop, platforms should be focused on a future where investors are hungry for returns and looking for an alternative to low bank rates and stock market volatility. “It is about adapting your strategy to encompass opportunities as you see them,” adds Laverty. “And ensuring that you have adequate levels of funding and an appropriate governance structure in place that will be required for those opportunities.”
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