UK

Quakle – Exotic Newcomer in Britain’s P2P Lending

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Quakle.co.uk launched in summer as a rare bird in p2p lending. Instead of using credit rating data to gauge the borrowers Quakle set out to base its rating on social connections tied online. Quote from then: “The trustworthiness of the borrowers is assessed by the lenders only. Quakle believes that social bonds strengthen confidence and make borrowers more likely to repay. In addition we are convinced that getting dozens of people to trust you is, at least, as much difficult as building yourself a high credit score. It is then the responsibility of a lender to choose whether to lend money to borrowers who are active members of user groups and have a good social rating.”

Recently Quakle reconsidered and adapted its approach. Now the site uses Experian data to credit score the borrowers. Director Josselyn Digny told P2P-Banking.com: “We changed the information collected on borrowers after we’ve got some feedback from lenders and potential lenders that they would not lend out money to borrowers if their credit history was not reviewed at all“.

A recent press release phrases the new message: “Quakle, the online peer-to-peer lending community, allows people to lend money to each other in a friendly and structured way, while cutting out the banks. Quakle credit checks its borrowers but is different from other peer-to-peer lending websites in that members also have a ‘reputation score’. This score is based on their individual behaviour and that of any group they may be part of within the site. This peer group system encourages people to be financially responsible.”

The company still suffers from a shortage of lenders and offers a 30 GBP reward on first bid for new lenders as registration incentive. Furthermore there are no fees for lenders. Continue reading →

RateSetter Brings Rolling Monthly Loans to P2P Lending

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British P2P lending site Ratesetter.com launched recently. Ratesetter uses market approach dominant in the UK (rather then individual listing).

A novel approach is the “Rolling Monthly Loan” Ratesetter introduces:

One of the two types of loan RateSetter offers. For a borrower, this is a bit like borrowing with a credit card. At the end of the month, they pay the interest and a minimum repayment amount. The balance of the loan is then rolled into a new contract (with a new lender). Lenders only lend their money for one month at a time. They lend their money again at the end of the month, but to a new borrower with a new contract.

This is an interesting concept. For lenders it solves the problem with other p2p lending markets (unless they have a secondary market) that they cannot cash early. For borrowers this comes with mixed blessings. While the rolling monthly loan comes with lower rates than a credit card, the rate will change each month (for better or worse).

I do wonder what happens should the lender demand dry out? How will Ratesetter refinance the Rolling Monthly Loans then?

Provision Fund

Ratesetter builds a fund as partial shield against bad debt:

Money invested in shares and corporate bonds isn’t covered by the Financial Services Compensation Scheme. Money lent with RateSetter isn’t either, but we’ve set up a Provision Fund to reduce the risks to lenders. Borrowers pay an amount each month into the Provision Fund based on their creditworthiness. The fund is managed by RateSetter so a lender can be compensated if their borrower doesn’t pay their loan on time. All payments from the Provision Fund to the lender are entirely discretionary – we can’t guarantee to compensate lenders from the fund and it isn’t an insurance product. If RateSetter builds up a surplus in the Provision Fund (if we’ve been overly conservative) RateSetter pays bonuses to its lenders (this is paid annually based on how much money they’ve lent over the year).

The height of the payment into this fund (called credit rate) is dependent on the credit score of the borrower. The website quotes a 1% credit rate as example. The Provision Fund by Ratesetter is the second construct to diminish risks from defaults to lenders after the Anleger-Pool concept by Smava (see articles on Anleger-Pool).

I see two downsides to the Provision Fund concept:

  1. It is (currently) not tranparent. The market view section gives no information how much money is present in the fund
  2. Should defaults rise above an expected limit the fund will be empty. While lenders with loans that defaulted first will be protected in full, the ones after could be left empty-handed. However Ratesetter could react to this scenario by raising the credit rates on the monthly rolling loans

The market view shows, that Ratesetter matched funds currently at about 6.3% APR for the rolling monthly and at 8.6% for the 36 month loans.

Ratesetter charges borrowers a 115 GBP upfront fee (for the 36 months loans); 5 GBP per month for the monthly loans and lenders 10% of the interest they earn.

The company was founded by Rhydian Lewis (CEO) and Peter Behrens (COO).

Fundingcircle’s First Month Figures

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Fundingcircle.com launched on Friday August, 13th. According to figures the company released, the p2c lending service had a good start. Apparently many lenders took advantage of the cashback offer, and immediately after lending sold loan parts to other lenders on the secondary market. Review the following numbers reported by Funding Circle:

  • 11 small businesses have fully accepted loans from Funding Circle lenders totalling 317,000 GBP
  • Funded businesses range from environmental consultancies and recyclers, to restaurants and retailers, and manufacturing and engineering companies
  • Over 1,000 lenders and borrowers have joined
  • 20 loan requests from small businesses have been listed on Funding Circle, with a good number of businesses in the credit underwriting process
  • Monthly interest rates for borrowers range from 7.4% to 10.7%
  • ~10,000 bids have been placed on loan requests
  • ~500 loan parts have been successfully transferred from one lender to another

Interview with Yes-Secure

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In early summer 2010 Yes-secure.com launched the second p2p lending service active in the UK. Dr. Chandra Patni, CEO of Yes-secure answers my questions.

P2P-Banking.com: Dr. Chandra Patni, please tell us about the background of the Yes-secure management team and what lead to entering the p2p lending market?

Dr. Chandra Patni: I came up with the business opportunity in 2008, having reviewed Zopa I felt that a social networking based person to person lending marketplace site could become a successful alternative to Zopa. I realised there were opportunities to build and complement the social lending market. Consumers need choice. YES-secure.com allows person-to-person lending alongside social networking as people want to know who they are lending to.

P2P-Banking.com: How is Yes-secure funded?

Dr. Chandra Patni: YES-secure.com is funded by private investors alongside the directors of the company.

P2P-Banking.com: What benefits does Yes-secure offer to lenders and borrowers?

Dr. Chandra Patni: Lenders: YES-secure.com provides UK savers and investors a new way to beat inflation and earn better returns than by investing their savings in fixed deposits in a bank. Along with the introductory offers and waivers, there are a wide range of markets (A*- E) allowing lenders to manipulate their investment across various markets getting them high, assured and steady returns. Debit card verification upon registration, stringent underwriting procedures and assigning markets in keeping with the borrowers’ creditworthiness make YES-secure a safe investment destination. Additionally, YES-secure offers a secure means of social network based lending and borrowing implying lower default rates and higher returns for lenders.

Borrowers: Borrowers can get competitive rates from real people. They simply describe how much they are looking to borrow, over what period, and the maximum interest rate they are willing to pay. Then they can simply sit back and watch people bidding to lend to them. Once they find a rate they like, they can accept it and get the money paid straight into their bank account. More traditional methods of personal loan approval rarely take personal information (such as connections, personality, and general circumstances) into account and are approved or declined based solely on credit history and financial circumstances. YES-secure combine both the important credit background as well as pertinent personal information on each borrower. Continue reading →