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Post by davee39 on Aug 17, 2014 11:46:42 GMT
Congratulations to RS on decisively smashing their weekly lending record last week, with £7.1m in new loans.
Where now?
How many people know about RS and other P2P sites but fail to invest (settling for the disgraceful offerings from the Banks) due to mistrust or fear?
I have attempted to recommend RS to family members who 'dont believe in that sort of thing'.
Perhaps they should re-brand as the 'Ratesetter Permenant Lending Society' - that sounds pretty solid.
The real problem is the lack of FSCS protection, and memories of the Banking Crash.
When the major sites formed the P2P lenders association they did themselves no favors regarding the resolution process to maintain loan collection should a platform fail.
Yes, they all have a process, and its enshrined within the FCA regulations that they should, but do lenders really believe in it or understand it? Do the platforms explain it?
The FSCS is funded by a levy on Banks and Building societies. It allows the lenders to put a common Logo on their publicity guaranteeing £85k of savers money.
So why do the major P2P sites all go their own way on resolution? Why do they not subscribe jointly to a single process designed to maintain collections in the event of platform failure and would there not be a huge benefit in a common logo certifying that protection?
Finally, can P2P break through the wall of fear and really threaten the Banks while regulation and protection remains so limited?
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Post by rarrar on Aug 17, 2014 14:07:39 GMT
I agree about the continuing collection of loans if a P2P oranisation stopped trading.
Yes we all know that our loans are theoretically ours and safe but I wonder what the cost of continued collection would be when carried out by a disinterested third party - 10%, 20% 50% ??
So an association setup system makes sense in that they will have a financial interest through the publicity in showing how safe our funds are.
Concerning expanding the lender base, I really do think P2P is only for those who understand risks and with the RS system the link between supply, demand and interest%.
Selfishly as a lender the smaller the lender base the better for my returns.
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spiral
Member of DD Central
Posts: 908 
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Post by spiral on Aug 17, 2014 18:00:35 GMT
Most of the people I try to recommend P2P to are quite happy to buy shares but see P2P as a lot more risky. IMHO they are quite clearly wrong. There seems to be the thought that Joe Bloggs is going to borrow their money and do a runner without repaying. If I were to borrow thier money I'd build myself a nice wall so that I can happily bang my head against.  |
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Post by mattr on Aug 17, 2014 19:08:42 GMT
The FSCS levy is imposed centrally. The banks didn't agree it themselves, and couldn't have done so legally since to do so would be massively anti-competitive. In any event I'm not convinced it's a good idea.
If everyone's forced to contribute to a communal pot, there's no incentive to have your own provision fund. And I'm not convinced that any communal fund would be better than RS's own fund. Plus I don't trust other P2P lenders - you have a risk of the system being gamed for maximum risk / reward for minimum contribution to the central pot. You could of course make the levy rules massively conservative, which would depress rates. Too complicated, not enough advantage over the RS model in my view. I think there's room in the market for a super super conservative P2P lender (with consequently lower rates for lenders) which will appeal to a broader audience, but I don't want that to be RS.
What I would like to see from RS is more transparency of how it calculates the expected default rate. It's all very well TELLING us that there's 2.4x coverage at the moment. How's that been arrived at? I think as lenders we're all accepting that we're taking some small measure of risk. And I'm comfortable it is indeed small. But more transparency would (1) help give me an idea of how small, and (2) keep RS honest in future. As far as I can tell, there is a zero sum game of borrower fees (ignoring the interest we get). An amount represents their credit risk and goes into the PF. The rest goes to RS. There's an inbuilt incentive there to overestimate the creditworthiness of your borrowers. I think as RS matures, more lender oversight would be a good thing.
This isn't intended to be critical of RS. I think it's great. And I think external auditing of its risk methods is a good thing. But the financial crash taught us that conflicts of interest are rife. It will be interesting to see what happens over the next few years as the whole P2P market matures.
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Post by westonkevRS on Aug 17, 2014 21:02:36 GMT
Our view is here: www.ratesetter.com/blog/Robust_protection_or_a_flawed_guarantee_.htmWith my favourite quote "The FSCS is the default option used, and cited, by unthinking institutions who simply don't care about giving their savers a decent return" That said, Mattr makes very good points about transparency. We tried to communicate this in a simple way with the brochure, and I have gone into more detail in response to personal emails and on this forum when we changed the expected loss recently. We'll consider how to do this more openly in the future, late in the year. |
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Post by davee39 on Aug 17, 2014 22:34:27 GMT
The provision fund does an excellent job of protecting against default from individual lenders, and thus allows RS to operate without diversifying loans, this provides certainty of return of capital and interest provided RS stays in business.
My concern, as a former ICESAVE saver, is waking up one morning to find that the RS site has suspended operations, as happened to a new entrant recently. I know the loans are still valid contracts but the admin would have be done by a third party appointed for the purpose, and presumably with little experience. Certainly, I have reached a personal limit in terms of the sum I am comfortable to expose to this uncertainty.
Without the FSCS a significant volume of deposits would be removed from the Banking system and placed into National Savings, even at zero interest, to insure against capital loss.
I think comparing the provision fund to the FSCS is Highly Misleading. The provision fund does not ensure return of capital if the business as a whole fails. Furthermore I think few economists would consider that FSCS contributions are responsible for the low rates offered by member institutions.
Mattr, just to clarify, my consideration of a common resolution policy is not connected with the provision fund. The suggestion is that it might be more effective if a single organisation was appointed to ensure outstanding loans are still collected if a P2P platform ceases to operate.
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Post by cautious on Aug 18, 2014 7:06:23 GMT
It seems clear that if P2P lenders had FSCS protection then funds would flood in, but rates would drop.
Like Davee39, I too have reached my comfort limit on lending....exceeded it to be honest, as I live off savings income.
It occurs to me that if a major platform ran into trouble the remaining major P2P platforms themselves would have a vested interest in administering recoveries.
Such a collapse would inevitably lead to nervous investors pulling out their funds from those other platforms.
However those other platforms already have collection processes in place, they understand the business, and seem well placed to step in and administer the situation.
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Post by p2plender on Aug 18, 2014 7:25:42 GMT
RS is already a profitable organisation btw.
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Post by GSV3MIaC on Aug 18, 2014 8:06:28 GMT
We seem to be confusing two things here..
1 ) a backup collection mechanism for all p2p companies in case the platform fails. Good idea IMO.
2 ) a universal provision fund against bad debts, fraud, whatever (as per banks & bsocs). Bad idea, IMO.
OK, if a platform fails their fund, if they have one, goes too. Acceptable risk IMO, compared to the not acceptable risk of being unable to collect anything.
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Post by p2plender on Aug 18, 2014 8:49:46 GMT
Maybe take a few loans out then if you're concerned borrowers are going to get repayments waived.
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Post by mattr on Aug 18, 2014 9:33:34 GMT
My bad for the confusion! Read twice, reply once, read twice, reply once...
Even now I understand what you're arguing for though, I'm still not sure how realistic an idea it is. Think about how very different some of the P2P business models are, and then imagine trying to negotiate a fair contribution from each P2P body for this sort of centralised backup administrator. Not easy!
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Post by westonkevRS on Aug 18, 2014 12:55:38 GMT
I agree with Mattr, not sure how you would agree fair contributions. As a strong well capitalised profitable company I'm not sure RateSetter would want to financially support the less so. And would it only include P2PFA members? Wouldn't it become a P2PFSCS....
Anyway, as a member of the P2P Association our lenders FAQ states our position:
"It is extremely unlikely that RateSetter will go into administration but we of course have to plan for all contingencies. If RateSetter were to fail (or close to new business for whatever reason), we have a fully funded plan in place to ensure that our lenders' loans are repaid according to the schedule. The funding of the plan comes from a combination of the income RateSetter receives from the loans plus any shareholder capital required. As a member of the Peer-to-Peer Finance Association, one of the obligations of membership is to ensure there is a process in place should the business fail.
In the unlikely event that RateSetter goes into administration, the contracts between Lender and Borrower is still legally valid and will not change. Borrowers will have to make payments to Lenders as usual. More information about the Peer-to-Peer Finance Association and how it works can be found on their website"
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