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Post by charles on Aug 16, 2017 4:37:29 GMT
Hi P2P Forum, Don't mean to stir the pot but am genuinely interested to hear people's views on the issue. I've noticed that many debt crowdfunding platforms have started to introduce a tiered system (if they didn't already before) - i.e. the more you invest, the higher the rate of interest offered to you, and the disparity in some cases can be quite large. Invest a thousand pounds and you get 9% for example, invest fifty thousand, and you get a far more generous 11%! But at Property Crowd, we've long resisted this and in fact have recently lowered our minimums to £1000 from £5000 previously, while ensuring everyone gets the same interest rate regardless of investment size. This is true of our newest deal yielding 11.35%, and all the ones we've offered previously. As many of our biggest and most active investors are from the P2P Forum, I would like to extend an open question and invite feedback and participation. Is this tiered system fair, in your opinion? Or does it fly in the face of the spirit of crowdfunding (i.e. greater access for the little guy, democratisation of investment opportunities, etc.)? Kind regards, Charles |
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r00lish67
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Post by r00lish67 on Aug 16, 2017 8:34:29 GMT
Speaking as a relatively small fish, my take on it is that it is fair.
To turn the situation on it's head, we can look at the example of straightforward residential mortgage lending. Those with +50% equity within their properties and a solid income will attract better, lower, interest rates than those on 95% LTV mortgages simply because they represent a more attractive proposition. Is that fair? To me, yes.
Likewise, those platforms targeting HNWI's clearly value their significant contributions more than smaller investors, as with one stroke they can massively reduce underwriting costs or just plain get a loan filled where it otherwise wouldn't be. They also save on administration costs, needing to tend to far fewer investors. I don't like it, but it's the commercial reality.
Another question is - for those investors with less to invest, should we care and/or be cautious about loans offering tiered interest rates? IMV, the answer is absolutely, yes. By investing at a lower rate, we have much less cushion of return in a diversified portfolio.
On the plus side, smaller investors can get alot more value out of smaller, non-tiered, less risky loans. They can invest the same amounts as the HNWI, but the HNWI would probably not consider it worth bothering with.
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hazellend
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Post by hazellend on Aug 16, 2017 9:12:31 GMT
Hi Charles, nice way to plug your latest loan lol
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locutus
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Post by locutus on Aug 16, 2017 9:15:13 GMT
I have to say that the question of fairness is a naive one to ask in the first place. Your responses are probably going to be skewed according to the natural distribution of wealth i.e. more people will claim it is unfair as they are most negatively affected by the policy.
P2P is no different to any other ecosystem and requires lenders of all sizes to succeed. Without the whales, some loans would never get off the ground and wouldn't be offered to smaller investors at all. Additionally, without smaller investors, some loans like jewelry would also not be funded as they're just too small scale for larger investors to be concerned with. A successful platform requires investors of all sizes and talk of fairness is misplaced and unhelpful.
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ceejay
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Post by ceejay on Aug 16, 2017 9:27:23 GMT
P2P is no different to any other ecosystem and requires lenders of all sizes to succeed. Without the whales, some loans would never get off the ground and wouldn't be offered to smaller investors at all. Additionally, without smaller investors, some loans like jewelry would also not be funded as they're just too small scale for larger investors to be concerned with. A successful platform requires investors of all sizes and talk of fairness is misplaced and unhelpful. I'd agree with the first part - requires lenders of all sizes to succeed - but not the conclusion, which seems to me to be contrary. If you want lenders of all sizes to be present, they must feel welcome. And, BTW, in practice the emphasis is on "feel" - much though we might like to believe we are rational investors, no-one really behaves that way. So if you want smaller investors to come, they must believe they are getting a "fair" deal. So what is "fair"? Discounts for quantity are a recognised part of many business models, but IMHO to be considered "fair" the discount should reflect the actual saving made by the seller. There is a platform cost to every transaction, so as a small investor I wouldn't be upset to see a small difference (say, 0.2 points out of 10) but if I say anything much bigger than that I'd think I was being asked to subsidise people wealthier than me, and I'd walk away.
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Post by charles on Aug 16, 2017 10:55:56 GMT
Hi Charles, nice way to plug your latest loan lol Haha, love the cynicism, but I am truly wondering if this is something we should be considering at Property Crowd. There are definitely higher costs associated with the administration of smaller accounts and smaller investments, and it's very hard to determine exactly what that should translate into when reflected in yields/interest rates. I understand the case for tiered rates, in much the same way I understand why amusement parks sell "Fast Track" passes - it's nothing personal, just business. But I still don't like the fact that someone can pay to cut the queue (even if I sometimes do just pay the troll to save time). It's a moral/philosophical thing. Anyway, like I said, I didn't mean to offend but really wanted to see what people thought because the feedback will help inform our own decisions or actions. Regards, Charles
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DiQ
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Post by DiQ on Aug 16, 2017 10:58:01 GMT
Life ain't fair, just decide if what's on offer is good for you or not and don't worry about people.
You should be grateful that you have money to invest at all, there's plenty of people who have nothing.
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Post by mrclondon on Aug 16, 2017 11:06:53 GMT
Tiered interest rates are in my opinion simply one approach of several in the p2p sector for underwriting large loans.
Some platforms pay underwriters (typically HNWI and company treasury operations) under a formal underwriting agreement, some pay tiered interest rates, some (think AC) use a pooled high liquidity investment account, some pay cashback (often tiered), etc. etc.
Neither fair nor unfair, its just a solution to the issue of filling large loans in a reasonable timeframe.
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archie
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Post by archie on Aug 16, 2017 11:42:37 GMT
My personal preference would be for the interest rate not to be tiered.
If cashback is needed to fill a loan then a flat rate percentage for everyone. This encourages everyone to invest more rather than just the big hitters.
I appreciate very large loans may be a problem but a platform should judge what they offer based on their lenders. If large incentives are needed then the loan is probably too large.
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ali
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Post by ali on Aug 16, 2017 15:31:12 GMT
Tiered makes sense to me. Others have discussed the differences between smaller and larger investors, but it also affects how much I invest as an individual.
I normally aim to lend a maximum of 1% of my P2P pot to any one borrower and if there are no tiers then I wouldn't often go above this (occasionally to 2% for a particularly attractive loan). But because of tiers, I have been known to go up to 20% on a single good quality loan to qualify for the higher tiers.
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Post by charles on Aug 16, 2017 16:58:56 GMT
Tiered makes sense to me. Others have discussed the differences between smaller and larger investors, but it also affects how much I invest as an individual. I normally aim to lend a maximum of 1% of my P2P pot to any one borrower and if there are no tiers then I wouldn't often go above this (occasionally to 2% for a particularly attractive loan). But because of tiers, I have been known to go up to 20% on a single good quality loan to qualify for the higher tiers. Interesting... good to know. Thanks ali. So you're saying that the higher interest was a sufficient incentive for you to forgo your diversification discipline?
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ali
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Post by ali on Aug 16, 2017 17:07:21 GMT
Tiered makes sense to me. Others have discussed the differences between smaller and larger investors, but it also affects how much I invest as an individual. I normally aim to lend a maximum of 1% of my P2P pot to any one borrower and if there are no tiers then I wouldn't often go above this (occasionally to 2% for a particularly attractive loan). But because of tiers, I have been known to go up to 20% on a single good quality loan to qualify for the higher tiers. Interesting... good to know. Thanks ali . So you're saying that the higher interest was a sufficient incentive for you to forgo your diversification discipline? Perhaps not forgo entirely, but certainly I will weigh up whether the return from a higher tier is worth the risk of the decreased diversification, yes.
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Post by charles on Aug 17, 2017 21:15:31 GMT
I have to say that the question of fairness is a naive one to ask in the first place. Your responses are probably going to be skewed according to the natural distribution of wealth i.e. more people will claim it is unfair as they are most negatively affected by the policy. P2P is no different to any other ecosystem and requires lenders of all sizes to succeed. Without the whales, some loans would never get off the ground and wouldn't be offered to smaller investors at all. Additionally, without smaller investors, some loans like jewelry would also not be funded as they're just too small scale for larger investors to be concerned with. A successful platform requires investors of all sizes and talk of fairness is misplaced and unhelpful. Looks like most investors on p2p forum think tiered interest rates are fair. Were you perhaps a bit too hasty in jumping to conclusions, locutus? 
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ilmoro
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'Wondering which of the bu***rs to blame, and watching for pigs on the wing.' - Pink Floyd
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Post by ilmoro on Aug 18, 2017 19:17:29 GMT
I have to say that the question of fairness is a naive one to ask in the first place. Your responses are probably going to be skewed according to the natural distribution of wealth i.e. more people will claim it is unfair as they are most negatively affected by the policy. P2P is no different to any other ecosystem and requires lenders of all sizes to succeed. Without the whales, some loans would never get off the ground and wouldn't be offered to smaller investors at all. Additionally, without smaller investors, some loans like jewelry would also not be funded as they're just too small scale for larger investors to be concerned with. A successful platform requires investors of all sizes and talk of fairness is misplaced and unhelpful. Looks like most investors on p2p forum think tiered interest rates are fair. Were you perhaps a bit too hasty in jumping to conclusions, locutus ? 'Most' isnt the word I would use to describe 16 out of 3400. Without any supportive analysis of the profiles of the respondents this statement is unfounded as it may be predominantly beneficiaries of tiered rates voting. Of course in their purest form tiered rates are unfair. Best example of this is mainstream banks. Why should someone with 5k get a higher rate than someone with 1k when the risk is identical (ie very little) Same with P2P. Someone who invests £1k in a loan as 1% of their portfolio is taking the same risk as someone who invests 100k as 1% of their portfolio so why should someone get a better rate for the same risk? However, are there any actual straightforward tiered rate platforms where the risk is equal. In most cases higher rates are paid for more risk, lower priority, different terms etc. Even FS where the tiered rates are most noticeable changes the risk profile by requiring those receiving higher rates to commit themselves to the full term and greater risk of reduced or no return in order to gain the boosted rate. Tiered rates also encourage lenders to over expose themselves in a loan therefore increasing risk by reducing portfolio diversification. A further point is that blanket use of tier rates actually results in platforms/borrowers over paying. This can be seen in several recent FS loans where it is clear that the loans would have probably funded without the need for tier rates but as tiered rates are now considered the norm the platform feels obliged to offer them.
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