michaelc
Member of DD Central
Say No To T.D.S.
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Post by michaelc on Nov 3, 2019 13:54:00 GMT
COL, L and now FS.
If the property market had crashed it would make more sense to me. I had thought that was the biggest risk I was taking with these three and others.
In fact am I right the risk I was taking was temptation by the platform to run their business for the immediate term at the expense of long term success? In particular, by spending little on valuations, DD etc and little on recovery whilst signing up as many borrowers as possible and ensuring (frequently through miss-representation) the loans were filled and thus fees paid.
Not sure what the solution is. I had thought it was the FCA's responsiblity to ensure business plans doomed to failure didn't or couldn't happen.
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Post by samford71 on Nov 3, 2019 14:55:13 GMT
COL, L and now FS. If the property market had crashed it would make more sense to me. I had thought that was the biggest risk I was taking with these three and others. In fact am I right the risk I was taking was temptation by the platform to run their business for the immediate term at the expense of long term success? In particular, by spending little on valuations, DD etc and little on recovery whilst signing up as many borrowers as possible and ensuring (frequently through miss-representation) the loans were filled and thus fees paid. Not sure what the solution is. I had thought it was the FCA's responsiblity to ensure business plans doomed to failure didn't or couldn't happen. I don't see the issue. These were just three SMEs. In fact, two of them wouldn't really qualify as SMEs and would be considered micro-enterprises. Micro and small enterprises fail all the time. If they asked for a loan on a self select P2P platform, you would have been mad to lend them money!
In the same way the FCA does not exist to ensure a retail investor's investments make a profit, nor is the FCA there to ensure that financial service business doesn't fail or that the business plan is sound. It could be a rubbish investment; it could be a rubbish business model. P2P as a concept may be fundamentally flawed. Not their problem. The only question for the FCA is does it meet the regulations. In the case of P2P, the government's requirement for 'light touch' regulation ensured the regulations were far less stringent that for any other part of the financial services sector. Capital requirements for P2P platforms were minimal. Operational controls were light. Directors and employees prior experience could be limited or non-existent. As "FinTechs", the business model focussed on maximizing origination volumes over loan quality. This helped them secure equity capital and gave them upfront fees but also ensured downstream issues with large NPL portfolios. Regulation taken from the bilateral lending market ensured the "treating your customer fairly" meant treating the borrower too easily and not giving a damn about the lender. Lenders are just capital providers; they were never the clients.
I've been warning about these things for over 5 years on this forum. To be fair, actual failures has been less that I would have thought. I was too pessimistic. The game isn't over yet though. We haven't had a downturn.
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jo
Member of DD Central
dead
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Post by jo on Nov 3, 2019 18:53:31 GMT
Difficult for punters to actually know >the< cause, but for me, the inability to timeously recover bad loans (even with a haircut) is a huge leading indicator for platform failure.
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rogedavi
Member of DD Central
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Post by rogedavi on Nov 3, 2019 19:33:31 GMT
P2P lending only makes sense for small loans: due diligence is too costly for banks, but people may be willing to do it for cheap. See it as like trading super illiquid stocks: no one cares because there is no depth so you actually can find a few arbitrage opportunities.
To me, P2P can beat professionals when professionals don't want to do it (or can't be bothered, like bling), or when it's not economically meaningful to do it.
Thats the long term niche.
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