Over the last few years the top three peer-to-peer (P2P) lending platforms – Zopa, Funding Circle and Ratesetter – have grabbed the limelight. They’ve dominated the news headlines and captured a disproportionately large share of the money coming into the sector. But there are some very worthy second-tier players who warrant attention, especially from the more experienced investor in search of a decent yield. Two in particular stand out: Assetz Capital and Folk2Folk.
Assetz is the bigger by some way. It has lent out £355m to date, while Folk2Folk has lent £176m. But they have several things in common. Both emerged from the “old world” of finance and lending. Assetz was set up by experienced property-market entrepreneur Stuart Law. Folk2Folk meanwhile, was set up by Cornish law firm Parnalls, which had been running a private mortgage book for many years. Both spotted an opportunity in P2P lending and moved fast, building businesses based on the personal touch. Assetz employs regional representatives who visit business customers and make credit risk decisions; Folk2Folk has physical branches – these are mainly in the southwest, but it has recently expanded into North Yorkshire. Both lend to small businesses, and both lend only on a secured basis.
In each case, the record of defaults and late payments is pretty impressive. Folk2Folk says it has had no defaults and only a few late payments. Assetz has had slightly more defaults (current arrears over 45 days stand at 0.52%, although this went as high as 0.89% in 2014). Nevertheless, its losses to date do seem manageable. Those numbers will, of course, change in any future recession.
Assetz has stress-tested its default estimate and reckons it should allow for a four-fold increase in defaults, which is reasonable. Assetz is using that number to help manage a provision fund which aims to soften any losses to investors that result from defaults – on this basis no investor has yet lost money from defaults or arrears. Folk2Folk does not offer a provision fund.
Both platforms offer a sensible choice of investments. Assetz has the biggest range of accounts, paying between 3.75% and 7% a year. The differential is largely accounted for by the duration of the investment – the easiest access account offers the lowest rate. Folk2Folk offers products paying between 5.5% and 6.5% a year – all of its loans have at least a 60% loan-to-value ratio. Folk2Folk offers its own innovative finance Isa (IF Isa), while Assetz says its own IFIsa is coming soon.
All of these accounts are at the higher-risk end of the market, so returns are not guaranteed. The real measure of success will be in a downturn when defaults and late payments will almost certainly shoot up – and the quality of past lending decisions will be put to the test.
In the news this week…
• It’s no secret that the blockchain is the hottest thing around right now, with the potential to transform almost any industry you can think of. However, it’s also clear that investors’ excitement is increasingly leading them to act first then glance at the fundamentals later. Last week, for example, one small UK firm found a way to leverage blockchain’s potential without writing a single line of a smart contract. The group, an Essex-based Aim-listed company that invests in internet and IT businesses, saw its share price rocket by nearly 400% in one day when it announced plans to change its name from On-Line Plc to On-Line Blockchain Plc. The price fell back somewhat after the company said that its “development of a blockchain product is still at an early stage of investigation and development”, but it remains more than 180% higher than before the name change. So much for efficient markets.
• Peer-to-peer lender Zopa has successfully securitised a second tranche of loans, according to P2P Finance News. The securitisation – packaging consumer loans and selling them to investors – was arranged by Deutsche Bank and led by alternative-finance investment trust Peer to Peer Global Investments (P2PGI). Some 31,000 loans held by P2PGI, with an average value of £7,488 each, an average interest rate of 7.2% and a total value of £208m, were securitised. The proceeds will be reinvested into P2PGI’s portfolio. It is the second securitisation of unsecured Zopa loans, after £138m was packaged up in September 2016.
Dave’s payday loans
Over a quarter of Americans have “overdrafted” their accounts in the last year, according to a new app available in the US – and one in ten have done it more than eight times. The app, called Dave, aims to cut the cost of going overdrawn – an average of $34 a time – by offering interest-free overdrafts. Users link the app to their bank account; Dave monitors their spending and warns if it looks like they are about to go overdrawn. It then asks if they want to borrow $25, $50 or $75 until they get paid. For this, the app charges $1 a month, but users can opt to give a “tip” of between 5% and 15%. Tips, Dave claims, can support the business “almost entirely”. For every percentage point of a tip, Dave plants a tree in Africa through a partner charity.