Hi Chris, had a wee think on this, some off-the-cuff misc questions & comments for you.
1. good to hear you share us ordinary lender’s concerns. Having trouble tbh understanding
what “commercial considerations” there could be that may sway AC not to provide additional information on loan make-up…?...?
2. Have had a look & (as already mentioned by others) the “strange activity” on the AM can only be explained by big lenders/uws shifting positions across loans. This raises questions, some perhaps “serious” that one would imagine AC were aware were going to come to light at some point or other - & I personally think the sooner they are the better for everyone. They won’t necessarily be easy to deal with, I appreciate that, but I do think a discussion with your lending base can only help to find the best way forward. Let me explain some possible issues/concerns:
a. with the new sys lenders have no possibility to see the make-up of a loan (previously the horse-shoe at least told us if there were uw’s present or not… which was a start)
b. right now we (ordinary retail lenders at least) have no visibility.
Do uw’s have any? (I would in any case hazard a guess that even if they DON’T formally in terms of system display they are likely to be in a better position to guage or even “know” this compared to small lenders by virtue of the previous info they will have obtained/gleaned/have made available to them whether formally or informally from their previous uw/lending activities on AC & perhaps other platforms too, or info they can exchange between them unbeknownst to us ordinary lenders or even AC.)
So today as a small lender my view is likely to be 1. That I know less on the new sys than I did with the old sys 2. Bigger lenders/uws now know probably quite a lot more than me
not to mention 3. Bigger lenders/uws can block smaller lenders both entering (they get first bite of the cherry so to speak on any loans if I’ve understood the new delivery system for loans) & exiting (clogging up the AM).
mmm.. not sure how happy I should feel about that all. But let’s continue the thought process…
3. In recent days there’s been some fairly substantial yo-yo-ing on many of the loans on the AM. For the mo I’d like to focus only on 4 of these – the 3 windies (106, 90, 93) & a non-windie (101).
The volumes available for these 4 loans on the AM have swung (sometimes repeatedly up & down) between 110 & 200k (106), 170 & 260k (90), 560 & 930k (93), 938 & 1236k (101). This is only what I’ve noticed when I’ve looked, there may have been even bigger swings at other times.
My own personal reading of this (I won’t go into details here suffice to say I feel confident I’m not far off the mark) is that the above swings have been made by between 2 & perhaps 5-6 (most likely scenario ) or maybe even 10-12 big lenders/uw’s (possible but less likely) shifting things around.
A small lender will (naturally) question himself as to the who’s & why’s as to this activity. Some of the things he’s likely to come up with are:
- Is this big lenders/uw’s simply rebalancing their portfolio?
- Is this big lenders/uw’s looking to exit some of their loans?
- (maybe most important of all) are these big lenders/uw’s acting individually without any knowledge of their peers’ movements (or alternatively could there be some “teaming-up” between 2 or more big lenders)?
I don’t know. Right now the only comment I feel qualified to say is that if it’s a result of either rebalancing or looking for exit they could have just as easily done it another way (putting only small volumes of each loan up for sale, seeing which sold & then as & when they get taken up adding a bit more on etc). And on the “teaming up” question..mmm.. well with the small numbers of big lenders involved that wouldn’t be difficult to organise surely if someone wanted to do it.. i
s this practice in any case allowed/encouraged/discouraged/forbidden by AC?In any event, by shifting fairly substantial volumes across loans in very short periods of time the net effect of big lenders’ loan-shuffling (whether it is out of laziness/panic/playfulness/ simply testing the market or whatever other reasons we could read into this) has been to “distort” the market, or at very least distort the picture of any given loan at any point in time. Just by way of example if a new small lender (& you imply there’s quite a few of these now – great btw) comes on to AC & sees there’s only 30k of units available of a 2m loan he may well think “great let’s go for that, won’t be hard to exit it if I need to”… only to find say a few days (or hours) later that there’s suddenly 500k on the AM for it…
Is that fair to the new lender? Is it likely to build his confidence in investing further on the platform? 4. It may very well be a simple coincidence but the movements on the AM have happened at the same time as AC’s launch of the Green Income Account & other new products. Again (looked at through the eyes of an ordinary lender) I could be asking myself “Is the rapid sell-down of windie loans due to AC buying them up for the GIA?” If it is then great most likely this will be targeted to many new lenders helping them come onboard & get better returns & helping all of us exit more easily in future if we wish to do so. If it isn’t then it opens up other scenarios. One of these could be that the big lenders/uw’s have quite cleverly played around with the windies “under cover” of the imminent GIA, helping them exit these perhaps more easily than they would otherwise. To be fair my own personal take is NOT this (won’t go into details & can’t be sure but I honestly think that although there may have been 1 or 2 acting this way there could just as well have been none & actually I think that’s the more likely scenario that played out). But that’s almost beside the point really. The real issue is that by not knowing what’s going on, or at the very least if there are any big positions in these loans, I have no way of gauging things…so… could (naturally) think it’s safer to steer clear of these loans…
mmmm…not sure how good that is for AC if lots of people think that way
5. There’s lot of good things going on at AC. I have faith in your management, the general direction, your software, many things… & honestly think you are without question (right now) the best equipped & most professional P2P outfit (if still to be tested in some aspects) out there. Early days ofcourse, both for you guys & P2P in general, but from this lender’s point of view I think (may be mistaken as I am not privy to inside info) your biggest challenges you need to work on further are:
- deal flow (more loans, including smaller ones which in recent months seem to have suffered much more than big ones)
- a larger retail lending base, made up of
many (x4 or 5 min as a first step) more smaller lenders
- drawdowns (don’t be fooled by the new sys doing this “behind the scenes” now, even uw/big lenders’ funds are finite, so the bigger the loans the harder to fill & the harder for these guys to exit, making it in turn harder for them to underwrite further new loans… so the whole process stays slow…things are still all linked up even if we can’t see them so imho takes us back to the above 2 points … the way to get a quicker & sustained flow of new loans over the next X months with a stable AM backing them up is for AC to offer many more smaller ones – even if this costs you a tad more in margins - & have lots more ordinary little lenders taking on the loans from the bigger guys..)
6. That said there are lots of new things that are going to happen in the P2P space as the market grows & matures. I personally think that one of the key decisions platforms will be needing to make as the market grows is how to capture this growth.. lots of many small lenders…or perhaps some of these but also a few bigger lenders that maybe handle lots of other people’s money for example.
Every P2P provider will be free to choose what he thinks is best at any point in time, & whilst I must respect this as only a very small member of a growing community I do hope you will also look at the many small lenders side of things. These are the guys that make your platform more “solid”, leave much less of a hole if/when they pull out, keep your AM liquid & stable (a healthy & successful AM is a KEY feature of a successful platform, still hugely under-rated imho by many P2P outfits – even those that have them), helping bring in new lenders with them whether by word-of-mouth (watch this space next 6-12 months imho) or the granularity they offer.
How the software works in each platform to balance the interests of the many parties will therefore be fundamental to a platform’s growth. This is likely to be a complex task (wouldn’t want to be in your shoes!) & twill not be easy to please everyone, or perhaps even enough folk enough of the time.
7. (last one, promise) back to the matter in hand… the “strange stuff” on the AM… & what could (& I think WILL) happen in future along this vein…
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there is a strong case for creating some visibility on the make-up of loans. One way could be “Top X Lenders %” or “X% of loans held by Y lenders” (should avoid the muddying issues you mentioned). Something anyway that gives us enough info to feel confident we have some idea how long are funds are likely to be tied up in a given loan. Others brighter than me will probably have interesting suggestions, all I can say from my side on this is that unless we get convincing reasons from AC as to why loan make-up shouldn’t be visible small lenders are likely to either limit their lending or kick up a helluva lot more fuss in future than they have to date. Neither good for AC, the sooner you deal with it the better imo.
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tools &/or (even temporary) restrictions for sales on the AM. These could include the ability to markdown units on the AM (we had this before, why not now?), perhaps a restriction on big lenders/uw putting up more than £X on the AM at a time (blunter instrument & I guess not easy to introduce, but perhaps worth considering even for short-term/occasional periods to avoid AM distortion in critical/key phases of AC’s development?)
That’s all. Can’t think of more now & apologies for the lengthiness but wanted to articulate some thoughts here & invite further participation both from lenders that may have different views/better ideas & new lenders that may not have thought about these things yet & could at some point find they have run into a spot of bother coz things weren’t thought out well enough beforehand.
You’ll find some questions above underlined on which I look forward to your thoughts, any other comments ofcourse also most welcome.
Good luck.
Ps.
What’s API?
