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Post by pelerin on Feb 4, 2015 11:57:50 GMT
Newbie question here - does anyone have direct experience with failed peer to peer platforms?
EasterEgg's excellent website lists about 10 platforms that have had difficulties.
Also mclondon has some interesting comments in the "Defunct P2x platforms - Quakle" thread. I quote..
"..They (Quakle) started off with NO external credit rating of borrowers, obviously a recipe for disaster.
..Squirrl.com folded because they per (were?) targeting too niche a borrower sector (service agreements) but nobody lost anything. Yes-Secure / Encash closed because the effort in reworking their business model to comply with the FCA regulation introduced this year was too great for the small volume of transactions they were processing after their earlier lax credit rating led to severe losses for some lenders. I came out with a small profit before tax, but a small loss due to higher rate tax on all interest.
All the other closures have simply been from an inability to gain traction in the market place, with virtually no losses for lenders.
It is upto lenders to consider a whole variety of risk factors before lending on p2p platforms."
I'd be grateful for any further comments from you gurus.
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Post by wiseclerk on Feb 4, 2015 13:58:25 GMT
In general there are the following risks for lenders investing on peer to peer lending sites:
+ borrower fails to repay the loan
+ (identity) fraud by borrowers
+ p2p lending company fails and ceases to service loans (there are several international examples Boober, Fairrates, Monetto)
+ unreliable forecasts of ROI and default rates; this did apply to Prosper lenders in the past. If you did lend in 2006/2007 and believed the forecasts you might be hard hit; actual default rates for loans were as high as >30%
+ on some services: open/undefined tax and legal issues
+ on some services: currency exchange risks
Not exactly a risk, but a lender's money might be tied up for the loan term. While somedo have secondary markets there is no guarantee that lenders can sell loans early. If interest rates rise overall, than older loans might not be able to sell (at least not without a discount).
In my 8 year experience the biggest risk that can lead to failure of p2p platforms is that the default levels rise much higher than predicted/anticipated by the platform. This will lead to investor churn and eventually the new loan volume goes to zero.
This happened at Boober (Netherlands). I think in terms of loan volume and lenders affected Boober (Netherlands) was the biggest platform that failed so far.
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Post by yorkshireman on Feb 4, 2015 14:30:30 GMT
Encash aka Yes Secure.
Seemingly conned by fraudsters due to the fact that the credit checking on the very early loans wasn't as good as it could have been and allegedly a borrower slipped through with falsified payslips/P60 and made just 1 or 2 repayments, YS never commented directly so it’s hard to say whether it was an actual scam or not.
It looked as if I would completely lose some of my investments with them until they honourably repaid the full amount when they went out of business.
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Post by Deleted on Feb 9, 2015 7:20:22 GMT
My worry is how do we keep evidences of the loans owned, if a platform fails.
None of the three platforms I have tested so far (AC, FC, ReBS) seem to be able to generate "official statements" (e.g. PDF file) on what I own at a given time, and I am assuming that none will send periodic statements by letter. Ideally, they should email each month a statement of what is owned.
If they fail, or are hacked, how do I prove which loans I have (or even what total amount was invested)? I had some savings in the past in Iceland, and was confronted one day to a shut down website. However, I did have proper statements.
Exporting CSV files does not make it very official and could be tempered with.
Are people taking periodic screenshots?
Is the FCA looking at this? I think the very minimum for safeguarding people's investment is to be able to prove what they have invested, should the platform no longer be available, or data corrupted.
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adrianc
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Post by adrianc on Feb 9, 2015 8:19:22 GMT
None of the three platforms I have tested so far (AC, FC, ReBS) seem to be able to generate "official statements" (e.g. PDF file) on what I own at a given time FC :- Summary page, My Loan Parts, Export Current View? (or even My Statements, View Transaction Statements?)
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ribs
Probably not James Marshall
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Post by ribs on Feb 9, 2015 8:40:43 GMT
Exporting CSV files does not make it very official and could be tempered with. Don't for a second think that pdf files are immune from this, not even slightly. Unless something is Digitally Signed it is utterly impossible to know for sure if a file has been tampered with using just the file alone.
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Post by Deleted on Feb 9, 2015 8:41:09 GMT
Yes, that gives a CSV file, which can be easily modified. Better than nothing, but hardly a firm proof of ownership...
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Post by Deleted on Feb 9, 2015 9:49:30 GMT
Don't for a second think that pdf files are immune from this, not even slightly. Unless something is Digitally Signed it is utterly impossible to know for sure if a file has been tampered with using just the file alone. I would personally feel a bit more reassured if I was getting a nice PDF file (with logos, addresses etc), as opposed to just downloading CSV files. I understand PDF files could be tempered with, and even physical letters could also be faked. However, a little bit more complex than a CSV file. Another option would be for the platform to use some one-way checksums (e.g. MD5), to confirm the holdings (IDs and total amounts, along with some undisclosed numbers) on the statements produced. Very easy to implement, and quite difficult to alter the data. I would be happy to pay a small fee to get a printed statement in the post every month or quarter, just to "formalise" a bit more my investment.
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ribs
Probably not James Marshall
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Post by ribs on Feb 9, 2015 20:39:38 GMT
I would personally feel a bit more reassured if I was getting a nice PDF file (with logos, addresses etc), as opposed to just downloading CSV files. I understand PDF files could be tempered with, and even physical letters could also be faked. However, a little bit more complex than a CSV file. Another option would be for the platform to use some one-way checksums (e.g. MD5), to confirm the holdings (IDs and total amounts, along with some undisclosed numbers) on the statements produced. Very easy to implement, and quite difficult to alter the data. Uhhh. No. If the MD5 is stored on the file itself, it would be trivial to simply change the MD5 string displayed. PDF files are easy to edit. Hell, you can even get apps for your smartphone to make it easier. Unless there was a separate database storing the checksums somewhere, having anything on the file itself is useless. If someone is technically savvy enough to know what a CSV file is and how to edit it, it wouldn't be difficult at all for the same person to edit a PDF. Any kind of checksum embedded into the file wouldn't be a major obstacle either. Digitally Signing is literally the only solution to authenticate that any file hasn't been tampered with, and I highly doubt that any p2p lender would bother implementing this. As far as I know banks don't even bother with this. Hell, when I applied for my mortgage, all I had to do was 'print' my online bank statements into PDF instead of to my printer and email the resulting file off, even at the time I was thinking 'this is stupidly insecure, I can easily change any of this  '. But obviously it would've come to light eventually if the money wasn't there. And, of course, let's not forget that Madoff actually did produce paper statements for his victims that were not worth the paper they were written on. Scarey stuff. But alas, all of this is moot: Ultimately, if something goes horrifically wrong with a p2p you have money in, it really doesn't matter how they are giving you the information as it'll all be worthless anyway, just as you experienced with Icesave until the FSCS stepped in. Except we don't have the FSCS covering our backs with p2p. It's a brave new world.
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Post by Deleted on Feb 9, 2015 20:59:39 GMT
Not exactly what I meant.
If the P2P platform is adding its own secret seed number to the MD5 calculations, and tells a trusted third party (or the checksum mechanism itself), then only them could check that the MD5 on your statement is indeed correct or not (and therefore the data is correct).
Regardless of a solution, I think most platforms say that a third party actually owns the loans, so the loans would be safe even if the platform goes bankrupt. However, there is still the matter of that third party having accurate records of who owns which loans (or parts), and therefore for lenders having reliable evidences to provide in case of issues.
I am not concerned about my banks and typically brokers, as they are massive compared to those P2P platforms managing a few million pounds. They do however at least produce regular statements.
I don't know if it's within the FCA remit to audit the back office processes to ensure that reliable records are kept and backed up.
If not, then it could be worth nothing more in reality than a few pixels on screen!
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bigfoot12
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Post by bigfoot12 on Feb 9, 2015 21:06:03 GMT
Hell, when I applied for my mortgage, all I had to do was 'print' my online bank statements into PDF instead of to my printer and email the resulting file off, even at the time I was thinking 'this is stupidly insecure, I can easily change any of this '. But obviously it would've come to light eventually if the money wasn't there. I'm getting really frustrated with this sort of thing. So many times I've had to jump through a hoop over the last two or three years that a criminal could just walk round with no consequences. I'm starting to get quite cross.
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bob76
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Post by bob76 on Feb 12, 2015 7:19:36 GMT
I see several posts here about potential for fraud, FCA regulation meaning not much in reality, and lack of real tangible evidences/proof of what lenders really own.
Sounds like P2P lending is going to cost money to a few people then, until it matures!
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bigfoot12
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Post by bigfoot12 on Feb 12, 2015 9:34:19 GMT
I see several posts here about potential for fraud, FCA regulation meaning not much in reality, and lack of real tangible evidences/proof of what lenders really own. Sounds like P2P lending is going to cost money to a few people then, until it matures! I agree you need to be very careful, and I don't see much point in being at the front of the queue in any new startup. (Unless they offer zero fees for life as Zopa did.) The problem is 0.75% pa in the FSCS bank account for the last four years has been costing a lot of people a lot of money too. (0.1% in a cash ISA I hadn't concentrated on for a couple of years!)
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bugs4me
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Post by bugs4me on Feb 12, 2015 9:43:10 GMT
I see several posts here about potential for fraud, FCA regulation meaning not much in reality, and lack of real tangible evidences/proof of what lenders really own. Sounds like P2P lending is going to cost money to a few people then, until it matures! My point exactly. There's often a great deal of emphasis placed on doing a few background checks on the potential borrower(s) on a platform without first carrying out those background checks on the platform itself. I know of a couple of platforms that I've looked at closely and the FCA must be asleep on the job to grant even an interim permission. But then they, the FCA, do collect fees so I suppose they have to live somehow or is that me just being cynical. 
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bigfoot12
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Post by bigfoot12 on Feb 12, 2015 11:55:59 GMT
I see several posts here about potential for fraud, FCA regulation meaning not much in reality, and lack of real tangible evidences/proof of what lenders really own. Sounds like P2P lending is going to cost money to a few people then, until it matures! My point exactly. There's often a great deal of emphasis placed on doing a few background checks on the potential borrower(s) on a platform without first carrying out those background checks on the platform itself. I know of a couple of platforms that I've looked at closely and the FCA must be asleep on the job to grant even an interim permission. But then they, the FCA, do collect fees so I suppose they have to live somehow or is that me just being cynical. I think that this is one of the main arguments against regulating something like P2P lending at this stage. People assume some sort of credibility that isn't justified. But if they made the regulation more substantial it would become expensive and would probably stifle innovation.
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'. But obviously it would've come to light eventually if the money wasn't there.
