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Post by stevefindlay on Mar 2, 2018 7:51:12 GMT
We predict platforms may fail (or shut for a period of time) due to:
(1) A lack of profitability / equity funding
(2) Poor lending performance
(3) Other
Platforms that fail because of (1) are unfortunate, as it may not necessarily signal poor lending practices. And may even be because they aren't skimming enough from investors(!). These types of failures can be harder to spot (eg an equity funding round being pulled at the last minute), but needn't have a negative impact on investment positions.
Platforms that fail because of (2) are to be avoided. I recognise the poor performance is likely to be a combination of bad luck and/or poor lending. But if it is systemic across a platform, then bad luck is unlikely to be the contributing factor. Most focus should be on trying to identify these types of failures. It is likely that these sorts of failures could have a material and negative impact on your portfolio.
Platforms that fail because of (3) need to be reviewed on a case by case basis.
(This post has been extracted from one of our posts on another thread).
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rick24
Member of DD Central
Posts: 244
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Post by rick24 on Mar 2, 2018 9:38:11 GMT
In the case of Collateral, it seems to have been failure to comply with regulatory requirements, rather than its lending, which has got it into trouble. Ratesetter seems to have been sailing fairly close to the wind in the past with its wholesale lending and, personally, I would not like to be exposed to all the other lending they do apart from the consumer lending (even if I wanted to be involved in the latter, which I don't). When selecting a platform that doesn't make a profit, I look for it to be part of a more established organisation. I understand that early-stage companies are going for volume growth with the backing of VCs but I do prefer a profitable company if possible.
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Post by stevefindlay on Mar 2, 2018 11:49:30 GMT
In the case of Collateral, it seems to have been failure to comply with regulatory requirements, rather than its lending, which has got it into trouble. Ratesetter seems to have been sailing fairly close to the wind in the past with its wholesale lending and, personally, I would not like to be exposed to all the other lending they do apart from the consumer lending (even if I wanted to be involved in the latter, which I don't). When selecting a platform that doesn't make a profit, I look for it to be part of a more established organisation. I understand that early-stage companies are going for volume growth with the backing of VCs but I do prefer a profitable company if possible. SS is one of the most profitable platforms in the UK... You may want to consider the unit economics of the business model, not just profitability. Most lenders are price takers - the market is reasonably competitive and borrowers have a reasonably wide choice for non-bank lending in the UK. So you need to ask yourself why is Platform A able to make a lot more profit than a similar sized Platform B - the answer usually lies in the total amount of fees taken from the borrower and lender; which is then reflected in your (the investors) risk/return trade-off. If Platform A is more profitable, and all else is the same, then you are probably getting a worse risk-reward trade-off. As ever, caution and a balanced approach wins the day.
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