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Post by danraj on Jan 17, 2019 20:22:23 GMT
After 6 years of lending, our average Net Return is 8.7%, which is above many other platforms. But our lending volumes are very low, so our lenders are arguably over-pricing the risk on our platform. Currently, there's little incentive to bid at below the maximum interest rate on every loan. The auction model works to reduce the interest rate where there is significant demand for a loan. Some platforms have stimulated this demand by encouraging more algorithmic lending. However, too much of this can create too much downwards pressure on the rate, thereby underpricing risk. We still think it is right that lenders should have the prerogative to set the interest rate they want to charge for their money, but we want to encourage more considered pricing. An idea we are working on is to rank the priority of recovered funds on defaulted loans, in order of interest rate, from lowest to highest. For example, we may recover 60% of the capital outstanding on a defaulted loan. Currently, we distribute this proportionally for each microloan, but what if we ranked all lenders by the rate they charge and prioritize those who lend at a lower interest rate over those who lend at higher rates. In this scenario, the 60% recovery would be distributed in a way where the lowest rate lenders would receive 100% of their outstanding capital and the highest receive 0%. This could have a bearing on how lenders vote on IVAs. For example; votes just over 50% are more likely to be approved, since the majority of lenders may receive 100% of their capital back. Instead of estimating a recovery probability that discounts everyone, we would discount (by 100%) those who may be outside the expected recovery proportion. This would still be an estimation. The introduction of Rate Ranked Recoveries means that by lending at the top interest rates, there is less likelihood of recovery. We would still aim to recover 100% of the capital + interest + fees outstanding on each defaulted loan. That won't change. We don't think it would speed up recoveries, something we are always working to improve. We believe that Rate Ranked Recoveries is fairer for all parties on the loan agreement. Lenders are rewarded for more considered pricing. We also believe it will help to normalise our Net Returns Histogram, which is visible on our stats page: www.rebuildingsociety.com/stats/ Currently there are 93 people with > 20% pa Net Returns. Your constructive comments and thoughts are most welcome. |
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Greenwood2
Member of DD Central
Posts: 4,376
Likes: 2,780
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Post by Greenwood2 on Jan 17, 2019 20:47:29 GMT
After 6 years of lending, our average Net Return is 8.7%, which is above many other platforms. But our lending volumes are very low, so our lenders are arguably over-pricing the risk on our platform. Currently, there's little incentive to bid at below the maximum interest rate on every loan. The auction model works to reduce the interest rate where there is significant demand for a loan. Some platforms have stimulated this demand by encouraging more algorithmic lending. However, too much of this can create too much downwards pressure on the rate, thereby underpricing risk. We still think it is right that lenders should have the prerogative to set the interest rate they want to charge for their money, but we want to encourage more considered pricing. An idea we are working on is to rank the priority of recovered funds on defaulted loans, in order of interest rate, from lowest to highest. For example, we may recover 60% of the capital outstanding on a defaulted loan. Currently, we distribute this proportionally for each microloan, but what if we ranked all lenders by the rate they charge and prioritize those who lend at a lower interest rate over those who lend at higher rates. In this scenario, the 60% recovery would be distributed in a way where the lowest rate lenders would receive 100% of their outstanding capital and the highest receive 0%. This could have a bearing on how lenders vote on IVAs. For example; votes just over 50% are more likely to be approved, since the majority of lenders may receive 100% of their capital back. Instead of estimating a recovery probability that discounts everyone, we would discount (by 100%) those who may be outside the expected recovery proportion. This would still be an estimation. The introduction of Rate Ranked Recoveries means that by lending at the top interest rates, there is less likelihood of recovery. We would still aim to recover 100% of the capital + interest + fees outstanding on each defaulted loan. That won't change. We don't think it would speed up recoveries, something we are always working to improve. We believe that Rate Ranked Recoveries is fairer for all parties on the loan agreement. Lenders are rewarded for more considered pricing. We also believe it will help to normalise our Net Returns Histogram, which is visible on our stats page: www.rebuildingsociety.com/stats/ Currently there are 93 people with > 20% pa Net Returns. Your constructive comments and thoughts are most welcome. I assume this could not be retrospective? Only on new loans and very well described.
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Post by danraj on Jan 17, 2019 21:51:04 GMT
Yes of course. There are changes to the loan agreement so we will make is clear which loans have the RRR agreements. We would also make this clear on the secondary market.
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Post by df on Jan 17, 2019 23:56:37 GMT
After 6 years of lending, our average Net Return is 8.7%, which is above many other platforms. But our lending volumes are very low, so our lenders are arguably over-pricing the risk on our platform. Currently, there's little incentive to bid at below the maximum interest rate on every loan. The auction model works to reduce the interest rate where there is significant demand for a loan. Some platforms have stimulated this demand by encouraging more algorithmic lending. However, too much of this can create too much downwards pressure on the rate, thereby underpricing risk. We still think it is right that lenders should have the prerogative to set the interest rate they want to charge for their money, but we want to encourage more considered pricing. An idea we are working on is to rank the priority of recovered funds on defaulted loans, in order of interest rate, from lowest to highest. For example, we may recover 60% of the capital outstanding on a defaulted loan. Currently, we distribute this proportionally for each microloan, but what if we ranked all lenders by the rate they charge and prioritize those who lend at a lower interest rate over those who lend at higher rates. In this scenario, the 60% recovery would be distributed in a way where the lowest rate lenders would receive 100% of their outstanding capital and the highest receive 0%. This could have a bearing on how lenders vote on IVAs. For example; votes just over 50% are more likely to be approved, since the majority of lenders may receive 100% of their capital back. Instead of estimating a recovery probability that discounts everyone, we would discount (by 100%) those who may be outside the expected recovery proportion. This would still be an estimation. The introduction of Rate Ranked Recoveries means that by lending at the top interest rates, there is less likelihood of recovery. We would still aim to recover 100% of the capital + interest + fees outstanding on each defaulted loan. That won't change. We don't think it would speed up recoveries, something we are always working to improve. We believe that Rate Ranked Recoveries is fairer for all parties on the loan agreement. Lenders are rewarded for more considered pricing. We also believe it will help to normalise our Net Returns Histogram, which is visible on our stats page: www.rebuildingsociety.com/stats/ Currently there are 93 people with > 20% pa Net Returns. Your constructive comments and thoughts are most welcome. Thank you for sharing this initiative and asking for opinions. It's great when platform reps are doing this. I can't see "Rate Ranked Recoveries" policy resulting in significant changes to bidding attitude. Also, complicating things can have a negative impact. Attracting new lenders could be more beneficial for reducing borrower's rates. I think the current p2p trend is leaning towards more simple products supported by bonuses to attract funds from new investors. Do you look at other platforms, how they operate bidding process? LC's primary market is very vibrant. It is very rare for lenders to get the highest rate and in many cases top rate significantly reduces during bidding process. I recall one occasion when the only option to get loan part was to re-bid at the lowest rate and no slice for those who arrived to the party late. It is helpful when bidders can clearly see their queue position and notified when they are outbid...the battle for loans goes onto last few seconds before deadline. After 2 years of lending, my average Net Return is 10.74%, which is above many other platforms  Very happy with my ReBS return so far.
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Post by captainconfident on Jan 18, 2019 13:57:59 GMT
Hi danraj, thanks for the detailed update. I'm with df in the opinion that it would add complication without significantly changing voting patterns. Not least because historically recoveries have not been very significant, certainly 60% would be exceptional. Put another way, investors like me accept that for interest rates 16-20%, the underlying business is not likely to have significant recoverable assets. The balance that you suspect that investors lack might be restored by finding borrowers that you and we would agree to be A rated. I note that the last of these on the platform are coming to term now. These have by and large lived up to their ratings and provided that distribution of risk that you mention. Except  W*ll**t*ee P*****t**s Ltd , where I lost a tidy sum on a A rater. Grrr! |
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seb8072
Member of DD Central
Posts: 177
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Post by seb8072 on Jan 19, 2019 10:54:33 GMT
Hi danraj, as I suspect that only a small number of your lenders read this forum I do not understand why you have put forward your proposal here instead of emailing it direct to your lenders.
I agree with df in that your proposal will not necessarily achieve your goals and making a system more complicated may well have (unintended) negative results. I have always preferred a “keep it simple” policy.
Your platform stats. claim 8440 registered users but how many are active bidders? I for one am not and will not be until I see a significant recovery in non-performing loans. The recent recovery from P**** F******** S******** Ltd was a great but small step and it’s also good to see some more informative updates on the non-perfomers. If you keep this up I just may be convinced to start re-investing again.
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Post by danraj on Jan 21, 2019 18:15:48 GMT
Thanks for the feedback. I want to welcome the opinion of inactive/prospective lenders from the wider industry but will consult directly with our active lenders too. Researching potential consequences is my primary motivation for starting this thread. I know there are some critical thinkers on this forum, with a lot of experience of p2p lending. In preparation for the post-implementation review, I think that conduit platforms like ours need to think more about our role in the industry. As a conduit platform, we do not price the risk on the loan. captainconfident part of our challenge in attracting more A-rated businesses is that the price of the loan exceeds what many borrowers expect to pay. We don't have access to 'free money' (from the British Business Bank) or institutions, our lenders are looking for above average yields, acknowledging the commensurate risks. While there is the option to lend to borrowers from as little as 4%, nobody does, why should they when other lenders are getting 16+%?! This understandably detracts more the creditworthy borrowers wanting to pay less. Currently, rebuildingsociety uses the dutch-auction model, (where lenders compete for participation) we notify lenders once outbid. However, stimulating supply manifests into a 'race to the bottom', which leads to the inverse problem of under-pricing the risk. Many other platforms have become price-setters in the industry, or discretionary, but I think there's another way... @seb8072 aligning the price with credit risk will attract more credit-worthy businesses, which in turn, will increase our lending volumes while simultaneously reducing our defaults as a proportion of our overall lending. Done correctly, I believe this is achievable without reducing our overall net return figure. I take your point that it introduces a layer of complexity, but I believe there is a way of presenting this pricing consideration in a simple way at the time of bidding. I'll give some thought to the interface and come back with some ideas. The simplest model will always be the discretionary proposition: "Give us your money and entrust us to invest it for you" - There are plenty of platforms offering simplicity and taking the margin for the privilege. BidPal, will be reconfigured to allow passive investors to set the price, instead of putting them in at the maximum rate, as it currently does. We've added more configurable options to BidPal, for example, an expiry date to the bidding rules. This encourages lenders to periodically review their rules. I'll come back with some visuals that help communicate how this would work in practice. Any further input is most welcome. |
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Post by captainconfident on Jan 21, 2019 18:34:06 GMT
Point taken re: A rated loans. But given this, it seems an anomaly to award your borrowers at best a B rating. I'm sure that could be addressed once this change was implemented to give a more fine grained risk rating.
I've been an investor for many years now and my dashboard shows net return 8.61%.
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Post by df on Jan 21, 2019 22:26:24 GMT
Thanks for the feedback. I want to welcome the opinion of inactive/prospective lenders from the wider industry but will consult directly with our active lenders too. Researching potential consequences is my primary motivation for starting this thread. I know there are some critical thinkers on this forum, with a lot of experience of p2p lending. In preparation for the post-implementation review, I think that conduit platforms like ours need to think more about our role in the industry. As a conduit platform, we do not price the risk on the loan. captainconfident part of our challenge in attracting more A-rated businesses is that the price of the loan exceeds what many borrowers expect to pay. We don't have access to 'free money' (from the British Business Bank) or institutions, our lenders are looking for above average yields, acknowledging the commensurate risks. While there is the option to lend to borrowers from as little as 4%, nobody does, why should they when other lenders are getting 16+%?! This understandably detracts more the creditworthy borrowers wanting to pay less. Currently, rebuildingsociety uses the dutch-auction model, (where lenders compete for participation) we notify lenders once outbid. However, stimulating supply manifests into a 'race to the bottom', which leads to the inverse problem of under-pricing the risk. Many other platforms have become price-setters in the industry, or discretionary, but I think there's another way... @seb8072 aligning the price with credit risk will attract more credit-worthy businesses, which in turn, will increase our lending volumes while simultaneously reducing our defaults as a proportion of our overall lending. Done correctly, I believe this is achievable without reducing our overall net return figure. I take your point that it introduces a layer of complexity, but I believe there is a way of presenting this pricing consideration in a simple way at the time of bidding. I'll give some thought to the interface and come back with some ideas. The simplest model will always be the discretionary proposition: "Give us your money and entrust us to invest it for you" - There are plenty of platforms offering simplicity and taking the margin for the privilege. BidPal, will be reconfigured to allow passive investors to set the price, instead of putting them in at the maximum rate, as it currently does. We've added more configurable options to BidPal, for example, an expiry date to the bidding rules. This encourages lenders to periodically review their rules. I'll come back with some visuals that help communicate how this would work in practice. Any further input is most welcome. I meant notifying by sending automated e-mail at the time when outbid has occurred. I might be out of date, but have been outbid once in the past and didn't find out about it until the bidding was closed. Apologies for any confusion.
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optimist
Member of DD Central
Posts: 124
Likes: 72
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Post by optimist on Jul 6, 2019 12:52:15 GMT
Thanks for the feedback. I want to welcome the opinion of inactive/prospective lenders from the wider industry but will consult directly with our active lenders too. Researching potential consequences is my primary motivation for starting this thread. I know there are some critical thinkers on this forum, with a lot of experience of p2p lending. In preparation for the post-implementation review, I think that conduit platforms like ours need to think more about our role in the industry. As a conduit platform, we do not price the risk on the loan. captainconfident part of our challenge in attracting more A-rated businesses is that the price of the loan exceeds what many borrowers expect to pay. We don't have access to 'free money' (from the British Business Bank) or institutions, our lenders are looking for above average yields, acknowledging the commensurate risks. While there is the option to lend to borrowers from as little as 4%, nobody does, why should they when other lenders are getting 16+%?! This understandably detracts more the creditworthy borrowers wanting to pay less. Currently, rebuildingsociety uses the dutch-auction model, (where lenders compete for participation) we notify lenders once outbid. However, stimulating supply manifests into a 'race to the bottom', which leads to the inverse problem of under-pricing the risk. Many other platforms have become price-setters in the industry, or discretionary, but I think there's another way... @seb8072 aligning the price with credit risk will attract more credit-worthy businesses, which in turn, will increase our lending volumes while simultaneously reducing our defaults as a proportion of our overall lending. Done correctly, I believe this is achievable without reducing our overall net return figure. I take your point that it introduces a layer of complexity, but I believe there is a way of presenting this pricing consideration in a simple way at the time of bidding. I'll give some thought to the interface and come back with some ideas. The simplest model will always be the discretionary proposition: "Give us your money and entrust us to invest it for you" - There are plenty of platforms offering simplicity and taking the margin for the privilege. BidPal, will be reconfigured to allow passive investors to set the price, instead of putting them in at the maximum rate, as it currently does. We've added more configurable options to BidPal, for example, an expiry date to the bidding rules. This encourages lenders to periodically review their rules. I'll come back with some visuals that help communicate how this would work in practice. Any further input is most welcome.We also believe it will help to normalise our Net Returns Histogram, which is visible on our stats page: www.rebuildingsociety.com/stats/ Currently there are 93 people with > 20% pa Net Returns. Hi,
As a new investor to RBS who's been with Funding Circle for 6 years, I like the additional complexity and control that RBS offers.
I used to earn 14% of FS which has dropped to 8.6% now that they have simplified the system to the point that there is no choice of loans. This is still a little higher than the reported 7.8% RBS returns but RBS appears to be increasing whereas FS appears to be dropping.
I would think that normalising your histogram by targeting the 93 people who earn 20%+ is less of a concern than those earning < -20%. (People tend to be more concerned about avoiding bad things than achieving good ones) One thing that gave me great great confidence in FS was their statement that no-one who had invested over 2K and purchased more than 100 microloans and owned them for more than a year had lost money. I had no concerns about earning less then I expected but much greater concerns about losing money.
One way to get lower interest rates may be by allowing bidding in 0.1% increments rather than 1% as undercutting by 0.1% feels like no loss of money whereas it puts you ahead of competitors. I used to have fun putting in bids at as close to the exact amount as possible but this will not work without more money comeing in To get more money coming in, additional security seems like a good idea but I would not be convinced by the existing info on recoveries. With more security, market forces will drive price down.
The current high levels reflect people's perception of the risk of lending on this platform
My confidence would improve if I had more access to how recoveries are progressing - I haven't found the data on old failed loans with visibility of how the recovery process failed.
I have over 1K in losses on FS but got more than 50% of that back so am happy they try hard to recover my money. I haven't had that fuzzy feeling the RBS is looking out for my investment so far and have resorted to purchasing 45 different loans with the expectation that some will fail, so I can see the process of recovery and judge for myself how well it works.
This will cost me money and time but is a worthwhile investment prior to investing more (my initial stake is 1% of the potential) Letting investors offer a buyback guarantee seems like a great idea but I have never seen one offered and have recieved a 404 error when I tried to offer one. I've occasionally go on to a forum page on the main website but it's blank and there's a message saying it's protected - not sure what is going on there. The existing bidpal system looks good but doen't work on loans with >0.5% premium and as most have a higher level than (4-5%) this it is essentially unusable. I love the concept of adding varioius rules to the purchase but can't use it  I sent a question regarding this but got no answer from RBS
I'd be interested in the API if everything else worked... I'm looking forward to learning more about the platform and do far, prefer the flexibiliy offered here to FS and hope to start investing more seriously in the next few months depending on what I learn. Best regards
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Very happy with my ReBS return so far.
W*ll**t*ee P*****t**s Ltd 