Peer to peer lending
Discussion
Behemoth said:
P2P removes these countless intermediaries and obfuscations and is, with the better P2P platforms, transparent and direct. You know exactly who you are lending to and at what risk. You can follow that risk along the full journey of the loan.
Do you genuinely believe that the typical retail customer knows how to arrive at a probability of default and understand why they're being paid often multiple percentage points (whilst those looking for investment grade assets often invest in the current market at (well below) 1%)?LooneyTunes said:
Do you genuinely believe that the typical retail customer knows how to arrive at a probability of default and understand why they're being paid often multiple percentage points (whilst those looking for investment grade assets often invest in the current market at (well below) 1%)?
Nobody said this investment class is low risk. Risk is explained and assessed well on the better platforms. Like all investments, caveat emptor and understand what you are investing in before you invest. Just the sort of elementary thinking that the professional finance community seemed to have failed wrt CDS & subprime less than a decade ago 
Ozzie Osmond said:
- Whole thing collapses with no government safety net, lenders lose money.
If your stocks and shares ISA loses money, that is not backed. Neither is the value of your pension. Neither is your house. Those are likely to be people's most expensive assets, or investments, and yet non are protected should markets crash.
Risk:reward. You can get your 0.5% protected, or get 10x that unprotected. I would hazzard a guess most people understand that.
Condi said:
Risk:reward. You can get your 0.5% protected, or get 10x that unprotected. I would hazzard a guess most people understand that.
I wouldn't - many people are just not that savvy. P2P lending is outwardly promoted like a savings product in many cases, not helped by the fact you can now hold such investments in an ISA which has savings in the name! (Clearly a S&S ISA has the same issues with a misleading description!)Mattt said:
IMO, P2P lending used to work ok a few years ago when returns were higher - now for me personally, the risk/reward isn't right.
A question for those who are actively P2P lending at the moment, inspired by this comment. Is the money you are putting down getting taken up quickly or is it taking a while to be placed? I ask because my business gets regular letters from Funding Circle and at least one other provider promoting loans (you have been pre-approved etc..) It feels to me like there is a excess of capital available relative to borrowers, which would likely result in the reduced returns mentioned above.egomeister said:
A question for those who are actively P2P lending at the moment, inspired by this comment. Is the money you are putting down getting taken up quickly or is it taking a while to be placed? I ask because my business gets regular letters from Funding Circle and at least one other provider promoting loans (you have been pre-approved etc..) It feels to me like there is a excess of capital available relative to borrowers, which would likely result in the reduced returns mentioned above.
There is, yes. As a lender it can take a while for your money to be placed.egomeister said:
you can now hold such investments in an ISA
No you can't. They are still going through regulatory permissions and maybe your point (well made btw) is exactly their sticking point.egomeister said:
A question for those who are actively P2P lending at the moment, inspired by this comment. Is the money you are putting down getting taken up quickly or is it taking a while to be placed?
That depends entirely on the platform and what rates (and therefore risk) you are prepared to accept as a lender. On sthg like Ratesetter you can lend a large amount very quickly if you offer competitive rates. On Funding Circle, you can use the secondary market to fill your loan book quickly (paying a small premium on the secondary market will fill it even faster). Their primary market ebbs and flows with seasonal and other factors. It'd be easy to get a few hundred loaned in a week but takes longer for a few thousand.Behemoth said:
LooneyTunes said:
Do you genuinely believe that the typical retail customer knows how to arrive at a probability of default and understand why they're being paid often multiple percentage points (whilst those looking for investment grade assets often invest in the current market at (well below) 1%)?
Nobody said this investment class is low risk. Risk is explained and assessed well on the better platforms. Like all investments, caveat emptor and understand what you are investing in before you invest. Just the sort of elementary thinking that the professional finance community seemed to have failed wrt CDS & subprime less than a decade ago It's not easy to assess credit risk, especially at the non-rated end of the market. Odd though that on one hand you choose to keep lambasting the finance community over their "failure" to evaluate subprime, yet seem happy to rely on people running P2P (finance types) to help explain/assess risk at the same end of the lending spectrum :-)
That site linked to by All that jazz is intriguing... especially one post, from a representative of a P2P site, that explained how they give companies a rating, perform background checks, and take personal guarantees. The tone and content of that didn't really seem to be "explained well" and appeared, to me at least, be clearly aimed at retail investors who'd think "this is all good!" without understanding lending norms or the nuances around what was being said.
Behemoth said:
egomeister said:
you can now hold such investments in an ISA
No you can't. They are still going through regulatory permissions and maybe your point (well made btw) is exactly their sticking point.However, given the immaturity of this market and the opaque risk in some cases I'm not sure I'd want to risk a great deal of capital on P2P lending at the moment given you should be able to see similar returns on more traditional products.
LooneyTunes said:
Odd though that on one hand you choose to keep lambasting the finance community over their "failure" to evaluate subprime, yet seem happy to rely on people running P2P (finance types) to help explain/assess risk at the same end of the lending spectrum :-)
Just like any other asset class, some P2P platforms are better than others and it's rather naive to throw them all into the same basket. Caveat emptor, once again. P2P lending from the better providers is not sub-prime. The best ones make their loan book public. If you think all P2P is about people and businesses that banks won't touch, you're misinformed.Behemoth said:
Just like any other asset class, some P2P platforms are better than others and it's rather naive to throw them all into the same basket. Caveat emptor, once again. P2P lending from the better providers is not sub-prime. The best ones make their loan book public. If you think all P2P is about people and businesses that banks won't touch, you're misinformed.
You've still not answered my question about people's ability to understand what they're really in to... A firm's loan book performance is only part of the story when it comes to evaluating credit risk/performance.
I'd argue that it's hard to see how anything that is capable of paying 5% returns, after costs, in the current market can be anything BUT sub-prime/NIG. The investment grade market is priced considerably tighter than that (by way of example: http://www.ft.com/fastft/2016/06/08/ecb-kicks-off-... obviously other debt products can be a bit wider).
Not saying that there isn't a place for P2P, just that it might not be as straightforward or exhibit the risk profile that some might think upon initial investigation. If it works for you then great, but in my mind it's clearly not something that's right for everyone.
LooneyTunes said:
You've still not answered my question about people's ability to understand what they're really in to...
A firm's loan book performance is only part of the story when it comes to evaluating credit risk/performance.
I'd argue that it's hard to see how anything that is capable of paying 5% returns, after costs, in the current market can be anything BUT sub-prime/NIG. The investment grade market is priced considerably tighter than that (by way of example: http://www.ft.com/fastft/2016/06/08/ecb-kicks-off-... obviously other debt products can be a bit wider).
Not saying that there isn't a place for P2P, just that it might not be as straightforward or exhibit the risk profile that some might think upon initial investigation. If it works for you then great, but in my mind it's clearly not something that's right for everyone.
You seem to have missed the part where it was said your money is divided up into very small amounts and then loaned to hundreds of people so if any of them default your exposure is tiny. I've had 2 defaults on the money I've loaned, a grand total of £30, and one of those (£15) was later recovered. That was on a loan some years ago now at 6.5% on £5k over 3 years and was a safe/medium risk category. That's not a bad return imho when you struggle to get 3% out of savings accounts these days and ISA rates are a waste of time and effort.A firm's loan book performance is only part of the story when it comes to evaluating credit risk/performance.
I'd argue that it's hard to see how anything that is capable of paying 5% returns, after costs, in the current market can be anything BUT sub-prime/NIG. The investment grade market is priced considerably tighter than that (by way of example: http://www.ft.com/fastft/2016/06/08/ecb-kicks-off-... obviously other debt products can be a bit wider).
Not saying that there isn't a place for P2P, just that it might not be as straightforward or exhibit the risk profile that some might think upon initial investigation. If it works for you then great, but in my mind it's clearly not something that's right for everyone.
I'm very risk averse but the way your money gets divided up into little chunks to limit your default exposure is a really good way of doing it. You would have to be EXTREMELY unlucky to get a load of defaults to lose you money and I doubt it would ever happen because the interest rate is relative to the risk. You can lend at higher rates but of course the risk of default is higher, however there are a number of a prolific high risk category lenders on that P2P forum that have been doing it years and overall have done extremely well from it. It's not for everyone but I think a lot of people just like to poo-poo it because it's not traditional lending and they don't fully understand how it works so go round telling everyone it's bad and you'll lose all your money when that's not true at all.
Edited by All that jazz on Saturday 23 July 23:06
LooneyTunes said:
You've still not answered my question about people's ability to understand what they're really in to...
A firm's loan book performance is only part of the story when it comes to evaluating credit risk/performance.
Yes I have. Caveat emptor. What do you suggest? A firm's loan book performance is only part of the story when it comes to evaluating credit risk/performance.
Moreover, the loan book isn't the only part of the story. You can review company accounts, credit scores and of course you know the name of the company itself and so you can, if you wish, do an awful lot of due dil on your own using this amazing thing called a search engine.
I don't know what's got your beef with P2P. How would you want it regulated?
Behemoth said:
Yes I have. Caveat emptor. What do you suggest?
Moreover, the loan book isn't the only part of the story. You can review company accounts, credit scores and of course you know the name of the company itself and so you can, if you wish, do an awful lot of due dil on your own using this amazing thing called a search engine.
I don't know what's got your beef with P2P. How would you want it regulated?
No you've not. Caveat emptor is not the same as someone being able to properly determine risk and PD.Moreover, the loan book isn't the only part of the story. You can review company accounts, credit scores and of course you know the name of the company itself and so you can, if you wish, do an awful lot of due dil on your own using this amazing thing called a search engine.
I don't know what's got your beef with P2P. How would you want it regulated?
Nothing has "got my beef" with the concept: I just question whether people actually know what they're in to and whether it should really be a retail product (instead of being sophisticated/HNWI investors only).
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