New Investment Fund Focussing on Investing in Global P2P Lending

P2P Income Partners‘ is a new investment fund by Symfonie Capital that will invest capital in p2p loans. The founder, Michael Sonenshine, an ex-investment banker, told that he plans the first tranche to be 25 million Euro. He says: “Initially we will invest in loans issued by sites such as Prosper, Lending club, Funding Circle, Zopa, Isepankur and we will add fonds to the mix as we see fit. The P2P market is not only web-based.  There are opportunities to make direct loan across Europe.  The key to success is spreading the risk and doing careful due diligence.”. The fund is open to qualified investors. Minimum investment is stated as 100,000 US$.

P2P Lending Year-End Review 2010

As the end of 2010 approaches here is a selection of main peer-to-peer-lending news and developments covered by

(Photo by paul (dex))

Zopa Rapid Return Secondary Market

One of the disadvantages for lenders in many p2p lending markets is that money lent cannot be withdrawn early during loan terms.

Zopa UK now introduces a secondary market called ‘Rapid Returns’, which allows lenders to cash out on all or selected market loans early. To do this a lender simply selects all or specific markets to ‘sell’ his loans.

For each of these loans, the system looks for other lenders offering to the same market at the same or a lower interest rate. Where a match can be found, each loan is then permanently transferred to the lowest bidding lender in that market. The winning lender will then earn the interest rate that the previous lender was getting on that loan, even if they offered at a lower rate. The lender receives the total outstanding capital on the loan from the offered funds of the winning lender.

Zopa deducts a 1% admin fee from the transferred capital.

There are some limitations: Loans made through ‘Zopa Listings’ are not eligible. Also excluded are loans where the borrower ever has missed a repayment. Some more restrictions apply.

And of course there needs to be a matching lender offer with a rate low enough.

Asked why lenders can not bid on loans on offer – thereby buying at a discount or premium – a Zopa employee explains:
“What you describe here is a true secondary market which …, we are not regulated to provide. I hope all will become clear when the full functionality is available in the next couple of weeks.

Our overarching rule when developing Rapid Return has been that it should allow lenders who want to exit some of their cash to do that. It is not designed to tinker with a loan book – in particular we wanted to avoid a scenario in which an experienced lender could cash out of some loans at the expense of an inexperienced lender.
As a final note on the ‘never missed a repayment rule’ – we started development with this rule as ‘not currently in arrears and hasn’t missed a repayment in the least three months’ but when we looked at the proportion of the total loan book for each, there’s a negligible difference. It’s therefore much clearer and fairer to go with the former.”

Currently Rapid Returns is only collecting offers on the buying lender’s side, letting lenders amend their bid offers to include Rapid Return loans. The feature will actually go live in a couple of weeks. Then selling lenders can mark their loan books for sale.

I expect that the Rapid Returns feature will further boost Zopa’s growth in the British market. Congratulations.

Twitter Post Raises Speculation About Zopa Introducing a Secondary Market

This twitter post caused some speculation that Zopa UK is working to add a secondary market to the p2p lending service. I didn’t contact Zopa management asking to comment on this for I believe they probably would neither have confirmed nor denied plans on a secondary market.

As discussed before the issue with offering a secondary market isn’t the technical or commercial implications, but to find a model that is in compliance with regulation.

For Debate: Can Data from Social Networks be Used to Reduce Risks in P2P Lending?

P2P Lending is mostly anonymous and loans are unsecured. To make the risks of lending to a stranger acceptable for lenders, p2p lending services had to provide models for the lenders to judge the dimension of the risk of not getting paid back.

The initial estimation of the risk-level could not come from the platform itself as it had no track record and could not build a model that “calculated” the level of risk involved for the lender. The consistent consequence was that nearly all p2p lenders relied on established third party providers for credit history data and credit scores. Prosper for example showed Experian data on default levels to be expected depending on credit grade.

Over the time it became obvious that the actual default levels at Prosper were much higher than the expected default levels based on Experian data. We don’t actually need to argue here what led to this (be it financial development of the economy, be it that p2p lending attracted bad risks, be it a poor validation process), but the result was that since defaults were much higher than expected, lender ROIs were much lower than expected at the time of the investment.

And this is not Prosper specific. Several other p2p lending services show clear signs that default levels will (or have) surpassed the initially published percentages of defaults to be expected based on external data.

Boober failed due to default levels, on Smava levels are higher than the Schufa percentages fore-casted, same is likely for Auxmoney defaults which will be higher then Schufa and Arvato Infoscore data suggested. The one exception from the rule is Zopa UK, which successfully manages to keep defaults low, as CEO Giles Andrews rightly points out.

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US P2P Lending Regulation Might Ease

The House of Representatives yesterday passed a bill that will move regulation of p2p lending services from the SEC to the newly created Consumer Financial Protection Agency (CFPA) in Spring 2010, provided the Senate and President Obama approve the new legislation.

Oversight by the SEC meant that Prosper, Lending Club and other p2p lending companies in the US had to go through an arduous registration process in the past, which forced them to close for new business for several months. Zopa even decided to exit the US market.

Prosper CEO Chris Larsen welcomed this development, saying: “In terms of how the Bill relates to peer-to-peer lending, we’ve always believed that the industry should be regulated as a bank-like sector by a strong, holistic regulator focused on providing robust protections for both lenders and borrowers…”.