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Post by 4thway on Apr 1, 2015 18:24:04 GMT
I think that P2P lending will merge more and more closely with banks and other institutions, so that they're all closely interlinked. I don't see it as a threat to our wonderful system of fiat  nor will institutions find P2P lending any big threat in the long run. It presents them with plenty of opportunities too for underwriting loans, investing their money, investing client money, earning commission for referrals perhaps...I think they'll all mix it up in lots of ways. More of a concern for us is which platforms will allow institutions better access, information or deals at our expense? |
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Post by yorkshireman on Apr 1, 2015 23:59:58 GMT
I think that P2P lending will merge more and more closely with banks and other institutions, so that they're all closely interlinked. Bl**dy h*ll! 
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Post by oldnick on Apr 2, 2015 5:06:06 GMT
I think that P2P lending will merge more and more closely with banks and other institutions, so that they're all closely interlinked. Bl**dy h*ll! Sadly the true sign of success of the p2x model will be that it is gobbled up by the big banks - like the building societies before them. Perhaps the only things that will delay the process of absorption are lack of capital invested in a p2x (too small to be worth buying) and the timing of the return of the banks' appetite for acquisition after the current bout of financial indigestion.
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am
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Post by am on Apr 2, 2015 6:50:46 GMT
Bl**dy h*ll! Sadly the true sign of success of the p2x model will be that it is gobbled up by the big banks - like the building societies before them. Perhaps the only things that will delay the process of absorption are lack of capital invested in a p2x (too small to be worth buying) and the timing of the return of the banks' appetite for acquisition after the current bout of financial indigestion. As you may recall, Hargreaves Lansdowne have announced an intention to enter the P2P space. One possibility is that the banks won't buy out the current players, but will just set up their own competing platforms. They might have the advantage of greater experience of implementing financial IT systems. (OTOH, IIRC, one of the contributing factors to the Co-op Bank's woes was a failed attempt to integrate the Britannia's IT systems.)
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pikestaff
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Post by pikestaff on Apr 2, 2015 7:40:27 GMT
Bl**dy h*ll! Sadly the true sign of success of the p2x model will be that it is gobbled up by the big banks - like the building societies before them. Perhaps the only things that will delay the process of absorption are lack of capital invested in a p2x (too small to be worth buying) and the timing of the return of the banks' appetite for acquisition after the current bout of financial indigestion. I don't think p2p will be gobbled up by the banks. The loans being funded by p2p are very largely ones that the banks don't want to make. The main reason they don't want to make them is tougher capital requirements, which make risky loans uneconomic for them because of the extra capital they have to hold. What we will see is the continued growth of other, less highly-regulated, types of financial institution. It is they who will become the big fish in p2p. Returning to the OP, I am not worried about the deflationary impact of p2p, because it is far too small. The amounts lent (and likely to be lent) pale into insignificance compared to those pumped into the economy through quantitative easing. Also, the new capital rules are themselves deflationary so p2p doesn't make things much worse. The more capital you have to hold against each loan, the less "fiat" money you can create. Offsetting the deflationary impact of the new capital rules is one of the main reasons for quantitative easing. Deflation terrifies me. If we have prolonged deflation, default rates will go through the roof because people cannot pay their debts, governments will default on their obligations and will be unable to pay pensions, and many private sector pension funds will also go bust. A small amount of inflation is good news all round, mainly to oil the wheels and allow relative wages to adjust, which is why the BoE targets 2%. Governments prefer the target to be overshot, but not by too much, so as to reduce the real value of government debt without frightening the horses. Whether we can get back to the happy state of affairs where inflation averages 3% or so remains to be seen. I fear it may be a long time coming.
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Post by pta1902 on Apr 4, 2015 9:55:05 GMT
Banking and money creation rests a lot on claims and promises. A depositor puts £100 in an instant access account. They have a claim on that £100 and the bank promises to give it to them on demand while paying some meagre amount of interest. Most of the time the money will go unclaimed. The bank also makes a loan of £100, the borrower has a very real claim on that £100 as it's sat in their bank account and they promise to pay it back with interest. The bank has two offsetting claims and promises. Occasionally the depositor may need to take out £10 say but as long as the bank is liquid then that's fine. This helps grease the wheels of the economy and ensures that the £100 deposited isn't fully tied up.
With fully matched p2p there is only ever one promise and one claim on the initial £100 of money. The promise is simply that the borrower will pay back the lender the money with interest over time. At drawdown only the borrower can ever lay claim to that £100. As it pays back the claim transfers back to the lender as it returns to their bank account. There's no promise of liquidity so if the depositor needs to take out £10 to buy a new kettle or whatever then they can't and the economy might suffer due to the added friction.
Which is a long winded way of saying what the original poster said. But crucially this need not always be the case with P2P. A number of P2P lenders offer monthly access products, which are used to fund longer term loans. As such we return to the first example where we have two promises and two claims. The borrower promises to pay back the lender over time AND the platform promises to pay back the depositor on demand. This removes the friction of fully matched money but it does mean that the P2P lender begins to morph into a bank. And given that P2P lenders aren't subject to the same stringent liquidity rules as banks it might be a promise that is less likely to be fulfilled unless the platforms also maintain (at cost) a similar liquidity pool.
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Post by bobthebuilder on Apr 5, 2015 2:51:48 GMT
pta1902 I presume your comments regarding liquidity exclude platforms with a secondary market, where loans can be sold to other investors, subject obviously to there being a demand for them. As far as platforms with monthly access products and no secondary market are concerned, there may be two promises and two claims, but the promise by the platform to repay after one month is very much a conditional one and lenders are made fully aware of this when they invest. There may be others, but the two platforms I know about that offer monthly access products without a secondary market are Ratesetter and Wellesley. Ratesetter say in their FAQs: “If a situation occurred where there were insufficient funds on the market to finance existing loans, the Lender would be 'locked-in' to the contract until the Borrower had repaid their loan. This situation has never occurred before, nor do we envisage it happening in the future, but we feel it is necessary to clarify the procedure should this scenario arise.” Wellesley on the other hand do have some of their own money to repay investors who request the return of their 30 day notice funds, but there is still potential for a ‘lock-in’ if Wellesley’s funds are insufficient, as their FAQs explain: “Wellesley & Co will manage an orderly repayment of your funds after 30 days provided that either: a) Wellesley Finance Plc having ( sic) sufficient own funds to buy back the loans that your funds are matched to Or; b) Wellesley & Co Limited can match your loans to other lenders’ funds. It is therefore important that you understand that return of your funds after 30 calendar days is not guaranteed and therefore the repayment of your funds could be delayed as a result. Please note that if we are unable to repay your funds we will prioritise the return of your funds before making any new loans through our platform.”
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pikestaff
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Post by pikestaff on Apr 5, 2015 6:09:02 GMT
It's also worth noting that your funds might be locked in for even longer. In the case of RS, if the Provision Fund were ever to go bust, RS would declare a Resolution Event whereupon:
"...all monies owing under the Loan Contracts (the "Assigned Funds") will be collected and pooled into the Provision Fund for the Provision Fund Trustee to hold on trust for the lenders. Following the assignment of loans to the Provision Fund, the Provision Fund Trustee will wait for all the loans to fully run down in order that it can collect all monies owing under the outstanding loan contracts, after which it shall distribute the Assigned Funds to lenders on a pro rata basis..."
There would be only one pool, so the money would be locked in for 5 years. I'm not expecting that ever to happen, but it could.
I'm not in Wellesley so I don't know what would happen there.
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Post by pta1902 on Apr 5, 2015 8:12:36 GMT
Yeah admittedly it's contractually on a "best endeavours" basis rather than a promise per se but I do wonder how high awareness is amongst investors of these clauses. Buried in the small print somewhat - I suspect some less informed investors would be unpleasantly surprised if they couldn't get to their money and might feel (rightly or wrongly) as if they'd been hoodwinked.
I think the point stands though that provided there is liquidity and the perception of liquidity that P2P need not necessarily be deflationary.
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nor will institutions find P2P lending any big threat in the long run. It presents them with plenty of opportunities too for underwriting loans, investing their money, investing client money, earning commission for referrals perhaps...I think they'll all mix it up in lots of ways.
