In line with our risk management framework, today we published our Q4 2019 performance update.
Auctions, CD Players and Fax Machines
Is the hammer itself, under the hammer? Got to love a cryptic question, huh? Much as we enjoy a good riddle, this one isn’t all that mysterious though. But it is fascinating to note that as eBay approaches birthday number 20, the same two digits reflect the percentage of sales it currently facilitates via auction.
For buyers, sellers and indeed platforms, auctions are becoming more trouble than they’re worth. Due to the administration required in assembling these prospective parties, goods at an auction typically go at a discounted price, sometimes known as the ‘hassle cost’. Research conducted in 2013 shows that this hassle cost has ballooned to 8% of things sold under the fixed-price model (more than double what it was in 2003) suggesting that buyers are commanding greater compensation for gracing auctions with their presence.
What difference does it make to P2P?
It’s a fascinating trend; one which reverberates in many other industries too. Intriguingly, our good friends at Funding Circle gave their platform model a significant revamp recently. Formerly, lenders would offer loans at rates in the form of a bidding process, with the borrower paying a blended rate for the combination of successful loan offers.
Such a model epitomises what marketplace lending, in its truest form, is all about. After all, the market rate is then set purely – and without external interference - by borrower and lender. But while it offers an element of excitement that many other platforms don’t, such intrigue commands a requirement to do one’s research, not to mention paying close attention in the build-up to the moment critique.
And in an era where attention spans are on the wane, are people now more interested in taking what’s on offer, and moving on to other things in their life? Funding Circle’s latest shift would suggest so, with borrowers now offered an upfront rate, and, if accepted, lenders lending at said rate.
It seems the ‘set and forget’ regime has been given the nod, and, with the bulk of peer-to-peer lending platforms embracing such a structure, we could tentatively deduce that rather than be saddled with the stress and fluctuations you’d associate with ‘playing’ the stock market, investors are taking sanctuary in the relative stability of being takers at a price they perceive to be fair.
After all, even shocks like the China crisis don’t cause sudden changes in the interest rate, so maybe there isn’t much of a market-place to be had in peer-to-peer lending after all? Maybe the days of ‘rate setting’ are numbered? And maybe the region of ‘possible agreement’ has begun to shift? Forgive us, we couldn’t resist!
Google's ruined auctions!
Auctions and bidding set a stage where amateurs, not wholly sure of the value of a product or service, have scope to lose out, typically to the benefit of the experienced and/or patient investor. With such variability comes the thrill of pulling off a bargain. For many though, the value is widely known, so an auction is an unnecessary intermediary to what will ultimately result in a sale at a fixed price. In some established markets, the price at which people are willing to buy and sell, or even lend and borrow, often converges around the same points, so unnecessary volatility can be frustrating.
That’s not to say the auction, as we know it, is dead in the water just yet. But we’re a progressive old bunch here in P2P, and we’re guided by the voice of the people. It seems the tribe has spoken, and, quite simply, we believe the future of ‘marketplace lending’ lies in a ‘fixed-price’ space.
Main image "Justice Gavel" by Tori Rector. Image subject to copyright. A link to the image and appropriate licence can be found here. You must not use or reproduce this image other than in accordance with the licence.
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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.
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