Funding Circle UK Moves To Fixed Rates, Ditches Auctions

Funding Circle LogoBritish p2p lending marketplace Funding Circle introduces a new model today. All new loans will be issued at fixed interest rates set by Funding Circle. Coming right after Funding Circle’s fifth anniversary, and 792 million GBP originated in loans to SMEs, the step to discontinue auctions is a major change in the way the marketplace operates.

Spokesman David de Koning told that there were major drawbacks associated with the auction model for borrowers as well as lenders. Borrowers lacked certainty of the final interest rate until the auction period was over which led to some of them cancelling their loan application. Investors on the other hand experienced cash drag and sometimes had to make multiple bids to ensure they participate in the loan they wanted.

Funding Circle new rates

Under the new model Funding Circle will set the interest rate based on risk band and loan term. There will be 3 different rates for each risk bank. De Koning pointed out that the introduced model is not completly new for Funding Circle, as Funding Circle did already use fixed rates on property loans and on the US market of Funding Circle. Asked whether he expects loans to close instantly as demand could be higher than loan supply, he said he could certainly see loans to close quicker than before. The long term goal envisioned is that in future borrowers may pre-approve a loan before it is listed and it could close instantly once filled. Continue reading

Fundingknight Launches Auctions

British p2c lending Fundingknight, a service facilitating p2p loans to British companies, yesterday launched auction bidding. Basic requirements for companies to be eligible to submit a loan application are:

  • The business must have at least two years trading history
  • They must be limited companies registered at companies house
  • And finally, they must be UK based businesses with a UK bank account

Fundingknight then uses the following criteria to decide if the application will be listed on the marketplace

  • Is the business well managed?
  • Is the company realistic about risk?
  • Will the business generate enough cash to repay the lenders?

Fundingknight launched in September 2012. There is no data publicly available on the loan volume to date.

Prosper Moves To Pre-Set Rates; Abandons Auction Model

P2P Lending site changed its business model today.

The company announced: ‘Our site has a new look, and we’ve eliminated the auction and simplified our loan process so that we can connect lenders and borrowers more efficiently. Borrowers will receive pre-set rates and lenders cannot be outbid. We hope you’ll appreciate this streamlined and even more prosperous experience.

Prosper is still lagging far behind competitor Lendingclub in monthly loan volume funded. While Prosper’s new loan funding process resembles the one of Lending Club more after Prosper did away with the auction it remains to be seen if it will help Prosper to regain market share.

The main problem of Prosper was not the auctions, but high default rates leading to lender churn.

Another change, according to a recent SEC filing, is that Prosper now allows partial funding of loans. Continue reading

Comparing MyC4 to Prosper

Researching the MyC4 concept (see previous post) there are some usability features that call for a comparision to

  1. Auction: The model of Prosper seems much more straightforward to me then the auction model of MyC4. The possibility of bidding above the maximum interest rate as long as the weighted average interest is below it, gives it a major twist. Every lender on a loan ends up with a different interest rate while borrower nominal interest rate is the weighted average (mind-boggling, isn't it?). And the full transparency of all bids during bidding process is interesting.
  2. Usability, communication and transparency: The interface is designed for much interaction. Everywhere the user can post comments (to profiles, to blogs, to loans, to listings). And with a user added avatar on every comment, it is very personal. No anonymity since real names are used (not screen names). Anybody can view the loans other lenders are invested in. Users can add icons to their profile to show which motivation led them to MyC4 (be it profit, education, social lending, …) 
  3. Defaults. So far none, but naturally it is much to early to judge. Hopefully MyC4 will have defaults as low as Kiva and prove that third world borrowers are more reliable.

There will be continued coverage about my experiences at MyC4.