My notes were somewhat less copious than registerme's, but I'll attempt to summarise my key take-aways:
Overall
I liked them too. Of course, it was a "marketing" event, but to have the three co-founders taking time out to spend time with a mixed bag of investors (I suspect mostly relatively small-time investors, like me) is quite an impressive thing. The co-founders were still sufficiently in touch with their business to answer quite detailed questions about their processes and systems, deferring to staff when necessary. I managed to speak with two of them after the formal session and they were remarkably "human".
On transparency, contrary to registerme's view above, I think they have got this pretty much covered, given the amount of data they share on the website. They asserted that due to the level of transparency, they are not worried about the almost inevitable process of a stock market floatation in due course.
We had a fairly lengthy discussion about the level of DD data they can share with lenders. Some data they obtain from banks, etc, is provided on a reciprocal basis and is solely used in the underwriting/approval process. This cannot be shared with lenders. The Companies House data could be shared, but my personal view is that they shouldn't - at most they should provide a link to CH, to facilitate those who are doing their DD. Their aggregated data used for refining risk models and monitoring in progress loans feels proprietary, and I also concur with their view that this is "wrapped up" in their risk band allocation.
Property Loans
This is a new area for them, which is why they need to incentivise investors with cashback; institutional investors want to see track record before they start investing - they pretty much have this now.
As rm says, the impending arrival of institutional investors should see cashback being scaled back, and will probably also see a lot less of FC topping up loans that don't fill.
There was much criticism of the consistency of data presented about property loans - they did commit to look to improve this.
I was not convinced by the suggestion that some investors had asked them to provide
less information on property loan requests - felt a bit like a cop-out to me. They need to provide as much information as they can in a way that allows people to consume or ignore it as they see fit.
Risk ModelTheir risk model seems very good, and is obviously performing increasingly well over time.
They also capture and monitor data about borrowers that they reject, watching for CCJs and other credit events. This has enabled them to develop a more complete model, and ultimately enabled them to launch the E risk band. E borrowers are people that they would previously have had to reject, but now they understand them well enough to feel they can accurately model the default risk.
They do not normally meet with borrowers face-to-face; their risk banding process is largely data-based.
Personal Guarantees are factored in to the risk banding process, and also considered in the manual underwriting stage; they do make an assessment of the "value" of the PG, but it's aggregated amongst lots of other stats to produce an overall 'score'.
Ref the difference between D and E, my notes say that they model a 50% swing on predicted defaults, so E would be 4%-12%, giving a net return of 6.2%-14.2%, before fees.
Recoveries
I had mixed feelings about the Recoveries process, as described in the session, but was eventually convinced after further discussion.
Essentially, the message was that people who are struggling to repay loans don't need to be threatened and "beaten-up", which is what they're used to in normal lending scenarios. They want their businesses to succeed, so FC attempt to be empathetic and give borrowers time to sort out their problems.
My counter was that FC can afford to give time because it's
our money that's not being paid back. They saw this perspective, but insist that it's still in their interest for recoveries to be successful, to whatever degree is possible. The success of the platform depends upon keeping lenders
and borrowers coming back.
They have successfully reduced their late rate (percentage of loans making late repayments) from 1.4% to 0.7% since they brought the function in house.
Their recovery rate is currently at 20p/£1, but this is skewed by the vast volume of loans being made; they expect this would be at c. 43p/£1 if the loan book was frozen.
They check for adverse credit events against existing borrowers twice per day, in an attempt to prevent "active" lenders from selling duff loan parts to unsuspecting innocents on the SM - they declined to answer my question as to exactly at what time they check...
Other geographies
The US site is growing fast. They're looking at expanding into Europe - potentially Germany, France, Spain and Italy iirc.
They are also considering how they might open other geographies up to UK investors, and vice versa. It didn't sound like they would allow us to invest in US companies, for example, in exactly the same way as we do with UK companies - some kind of aggregation may be required.
Tax
No SIPP any time soon - too much complexity around connected individuals.
ISA - they lobbied for multi-platform IF ISAs, while other P2P platforms did the opposite.
Bad debt can be offset against P2P income across platforms from April 2016 (including 2015/16 tax year) - I expect you guys already knew this.
Current legislation means P2P platforms will be required to pay net interest from April 2017, which is at odds with new requirement for banks to pay gross interest from April 2016. They hope HMRC will see sense and allow P2P to continue to pay gross interest, especially as it was confirmed that P2P income is covered by the savings tax allowance.
Miscellaneous
The other significant investors were Baillie Gifford, and the Singaporean government.
FC invited the FCA to audit/assess their risk assessment processes, but the FCA decided they didn't want to get involved - I guess they don't want to be seen to be responsible, but that seems a bit of a cop-out to me.
Well, that turned into a bit of a brain dump - apologies if any of it doesn't make sense.
If you ask all those questions then I'll know who you are...
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