As a platform, we take great pride in all that we've achieved since opening our doors for business nearly six years ago. We’ve
How will institutional money affect our lenders?
Much has been said regarding the arrival of institutional money in the UK’s various peer-to-peer platforms, with many consumers left confused, and, in some cases, concerned by what they perceive to be an invasion by the corporates of an industry intrinsically intended for the people. Transparency is one of our core values here at Lending Works, and given that we’ve recently introduced institutional money into our supply of lending capital, we wanted to take this opportunity to explain why we believe it can be of benefit to you, the consumer, while also clearing up any misconceptions you may have.
The progress of peer-to-peer lending on a global scale has been remarkable in recent years. Growth in China has been particularly explosive, and, like the US, it is now a multi-billion dollar industry. In the UK, the figures are similarly impressive, with the sector having recently toppled the £2 billion mark, and with the imminent inclusion of P2P within the ISA framework, this figure is likely to escalate to £45 billion within a few years.
Perhaps somewhat at odds with the US and China though is the fact that much of the growth in the UK has been driven by consumers, as opposed to the financial muscle of institutional money with which the growth overseas has been fuelled. Yet commercial success will never stay off the radar of the bigger players for too long, and as institutions flock to the various platforms, the question becomes: can consumers co-exist with institutions peacefully?
Busting myths about the big fish
The first thing to clarify is that in the case of peer-to-peer lending, institutional money is still, in essence, retail or consumer money. All it involves is someone like you handing over control of your investment portfolio to a professional agent or entity.
In fact, the very presence of institutional money should be taken as a sign of encouragement by consumers. These institutions are run and managed by well-qualified professionals who research all investment opportunities heavily before putting their clients’ money into it. Not only does their arrival to a platform vindicate a consumer’s decision to lend peer-to-peer, it also vindicates their decision to cut out the (expensive) middleman and take control of their own finances!
Is it against the spirit of P2P?
One of the most appealing elements of becoming a lender is the satisfaction of cutting out the bank and helping creditworthy borrowers to better their lives with loans funded by you – a more preferable alternative to putting your money in a savings account and funding a banker’s bonus! While borrowers may be less concerned about the source of their loan, there is a definite synergy between the two sides that makes certain peer-to-peer platforms unique.
Some might view the introduction of institutional money at Lending Works as a violation of this unique interaction, but it need not be. As mentioned, institutions are ultimately just representatives of consumers on a larger scale, and it will never be a prerequisite for our lenders to go through an intermediary.
More importantly, the presence of institutional money ensures that the high demand from our creditworthy borrowers will always be met. The flow of lending capital from consumers is generally seasonal, and can vary depending on numerous external factors. The ability of institutions to inject greater amounts of capital ensures that our platform will always be able to function with the required level of liquidity.
Will everyone be treated the same?
In the US, in particular, there have been issues regarding preferential treatment. With some platforms, consumers have been sold short by virtue of institutions - who typically bring more money to the table - being able to 'cherry pick' their loans. As such, consumers could be left with a pool of borrowers with inferior risk grades, thus increasing the likelihood of defaults on their loan repayments.
At Lending Works, we have a loan-matching algorithm we call the ‘Fair Algorithm’, which ensures that all lending capital – be it institutional or consumer – is treated equally. Therefore no lender is unfairly prejudiced, either in terms of the quality of borrower their money is lent to, or the time it takes to match the funds.
Lending Works’ founder and CEO Nick had this to say on the matter: “Consumers are the foundation upon which the peer-to-peer lending industry was built, and will always be the heartbeat of our day-to-day work. Yet we believe the inclusion of institutional money is a positive step forward for our platform. Not only will it give other consumers the confidence to follow suit, but it will significantly increase our growth potential, which can only mean good things for everyone involved.
“Aside from the Fair Algorithm, which ensures each lender is treated impartially, the enduring principles and integrity upon which Lending Works was founded will ensure that no customer will ever experience any barriers to entry. In fact, consumer money continues to form the majority of our lending capital, and our focus will always centre on the consumer.
“The presence of institutions will only enhance our business model, and we’re excited about the sustained benefits this will bring for both our lenders and borrowers.”
Related articles:
Our website offers information about saving, investing, tax and other financial matters, but not personal advice. If you're not sure whether peer-to-peer lending is right for you, please seek independent financial advice, and if you decide to invest with Lending Works, please read our Key Lender Information PDF first.
As with all investments, your capital is at risk.
Since opening our doors back in 2014, we’ve always prided ourselves on living and breathing two key principles at Lending Works: innovation, and putting the customer first in everything we do.
With the retail sector enduring its fair share of challenges, companies are looking at new ways to attract customers, and drive conversion. In an overcrowded, dog-eat-dog marketplace, with behemoths such as Amazon flexing their muscle, it’s easier said than done.
On 4 June 2019, the Financial Conduct Authority (FCA) released its new regulatory framework for peer-to-peer lending (P2P); a Policy Statement known as PS19/14. As you might imagine, it's a document which, following a three-month consultation, is a hefty read of no fewer than 102 pages.
When it comes to investing, there are numerous questions that need to be asked, and lots of things which need to be properly understood before committing your hard-earned money
Featured
In a difficult climate, customer acquisition and lead generation present stern challenges for UK retailers, and a great deal of marketing spend invariably gets directed towards getting feet through the door.
There is a variety of literature and research illustrating the importance of building brand loyalty, albeit with some degree of variance.
Over the last decade, there can be little dispute that the reputation of mainstream banks – and particularly the so-called ‘Big Four’ (HSBC, Barclays, Lloyds and RBS) – is at its lowest ebb.
The idea of peer-to-peer (P2P) lending is a simple one; you lend money to those who wish to borrow, with a view to receiving a great return for doing so.
The peer-to-peer (P2P) lending industry is now regulated by the Financial Conduct Authority (FCA). The regulatory framework has been designed to protect customers and promote effective competition.
Most popular
January tends to be a comedown following the Christmas festivities, and, from a personal finance perspective, a time for many Britons to lick their wounds. In particular, for those who’ve over-extended their credit card, it may feel like the walls have started to close in.
A new year, and indeed a new decade has dawned. Reflecting on 2019, what seemed to have got lost in the noise and political hysteria was the fact that the UK economy actually held up remarkably well.
As the good times rolled in the mid-2000s, only a precious few sounded the alarm as lending became increasingly reckless. Northern Rock's infamous 'Together' 125 per cent mortgage epitomised the rush for high loan-to-value (LTV) deals at a time when it was thought that house prices would just keep going up forever.
For those with an eye on the economy, 'GDP day' is always one to mark off in the calendar each month. And it's been a hot topic for the UK in 2019, with the latest update showing zero growth for the period from August to October.
One of the perceived strengths of the auto-enrolment pension scheme is its simplicity – indeed, it is actually a greater effort for an employee to opt-out of a workplace pension than it is to be enrolled into one. No further actions are required, and the retirement fund grows as the months and years pass by.
On Monday this week, a new FCA regulatory framework came into effect for peer-to-peer (P2P) lending in the UK, in line with June’s PS19/14 Policy Statement.
Recent
The Lending Works Shield does not give you a right to a payment so you may not receive a pay-out even if you suffer loss. The Lending Works Trustee has absolute discretion as to the amount that may be paid, including making no payment at all. Therefore, investors should not rely on possible pay-outs from the Lending Works Shield when considering whether or how much to invest. For more information click here.