Zopa

How I Selected My Preferred P2P Lending Marketplaces – Part I

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This is part I of a guest post by British investor ‘Pete’.

Perhaps an introduction is the best way of starting this blog post since it should explain my reasons and approach to Peer to Peer (P2P) and Peer to Business (P2B) lending.

I am a UK based independent professional engineer. An engineer in my discipline requires a love of detail, data and spreadsheets and being independent it is required that I run my own company so I understand basic accounting and number/data manipulation.

So why do I invest in P2P and P2B? In the past I have had Pension funds raided, Investment funds loosing capital due to stock market losses and fees, a mortgage endowment policy returning 1.9% over 25 years when a simple cash investment returned +9%, shares devalued by the UK government who then bought them out at the devalued rate … a long list of ‘professionally’ managed schemes that lost my money. With P2P and P2B I am in control, I either sink or swim based on my decisions.

I started lending at the start of 2012 with Zopa and to a lesser degree with Ratesetter but not before I had read as much as I could find regarding P2P and the various business models. Using on-line resources research into Company and Directors ‘histories’ followed, a process I continue to use before I start investing with a new platform. Risk and Taxation were the next topics I looked into.

Whilst projected default rates were available on  Zopa I took a pessimistic view and anticipated a higher rate of loss when I put together my first spreadsheet to log my transactions and real rate of return (I mainly use Excel with the XIRR function). My aim with Zopa was to diversify as quickly as possible so I quickly put together a large number of small loans whilst ensuring that I didn’t have ‘dead money’ waiting to be lent out. This strategy worked and my losses have so far turned out to be below the Zopa projected level. In recent years Zopa have changed the way monies are lent out and introduced a provision fund to cover bad debts (Ratesetter have always had a fund) and at the same time investors rates dropped (Zopa dictated the rate at which money was lent) so I decided with regret that Zopa was no longer for me and started to withdraw monies as they became available, a process that will continue for some years since I am still happy with the return from my remaining loans.

In the meantime my Ratesetter account quietly built up (the power of compounding interest) and I had started investing in Funding Circle (Sept 2012). I quickly found out that due diligence was required when investing in listed loans (I do not like automatic bidders, I will always manually invest/re-invest) and whilst time consuming it gives some reassurance that you are not investing blind. Whilst the returns I received (and still receive) from Funding Circle are above those I receive from Zopa and Ratesetter I have found the time taken checking companies can be disproportionate to the return if small loans are made. In spite of due diligence the defaults in my experience are higher and coupled with the current UK taxation system for individuals, defaults can hit your rate of return in a disproportionate way.*

It is for these reasons that I have in the last year started withdrawing cash from Funding Circle in the same manner I am taking with Zopa. In the meantime my Ratesetter account continued to build. Continue reading →

Main UK P2P Lending Services Agree on Standard for Calculating Defaults

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A long time downside of p2p lending was that each company used its own definition for defaults making it hard to impossible for all but experts to compare figures for different p2p lending companies. The Peer-to-Peer Finance Association (P2PFA), a trade organisation of British p2p lending companies, now addressed this issue with a new standard: ‘In future, all P2PFA members will calculate defaults on their loans in a standard way, helping consumers compare between platforms and to strengthen standards of industry disclosure. The new default rate calculation is currently being implemented and will be published on each individual P2PFA member’s website.’

P2PFA definitions of Non-Performing Loans and Defaults:

Definition of Non-Performing Loan:
A loan should be considered to be a ’Non-Performing Loan’, ‘Impaired’ or in ‘Arrears’, where the relevant borrower of the loan is:
(a) more than 45 days overdue in an interest payment; or
(b) more than 45 days
overdue with a principal repayment; or
(c) legal action for enforcement of the loan has commenced; or
(d) the loan is being or has been renegotiated with a borrower, or
(e) the loan has not otherwise been in full compliance.
The amount of arrears is the amount overdue for payment in a) and b) above. Continue reading →

Zopa Changes Matching Algorithm

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Zopa has announced changes to the sequence in which investor funds are matched in lending.

Over the next few weeks we will be making a number of changes we believe that will improve the overall lending experience.

Phase 1 – Maximum exposure change

Starting this week, we will be adjusting the maximum exposure for lenders. This will mean that the maximum you lend to any individual borrower will rise from 0.5% to 2% of your total funds. This means that you will lend in £10 chunks when lending up to £1000, £20 chunks when lending above £1000, £40 chunks above £2000 etc. This change will enable us to allocate more of a lender’s money to each loan and allow funds to be lent out more quickly. From a risk point of view, 2% provides a good level of initial diversification and over the course of time it will steadily increase so that lenders will have hundreds or even thousands of individual loans.

Phase 2 – First in first out lending (FIFO)

The second update which will also take place in the coming weeks will see us prioritise repayment money to allow existing funds to be matched more efficiently. We are calling this “First In First Out” (FIFO) and will separate out new funds from repayment funds, with repayments being matched first. New funds, or manual top ups are then placed in a FIFO queue and then dropped into the matching engine in a controlled way. This prevents spikes in new funding from slowing down lending of repayment money and allows us to give an accurate prediction of when new funds will be matched. It also allows us to lend as much repayment money on offer before allocating new funds for loans, therefore working your existing money harder.

Phase 3 – End of day matching

In the following weeks we will begin matching loans in one process at the end of each day. By allowing loans to be accumulated over the course of the day and including rapid returns, we can optimise the matching process to make it even more efficient. This will mean that all our lenders will receive a more consistent blended rate, regardless of lending size in any given day.

At Zopa our goal is to provide the best rates to our lenders and borrowers and ensure that we are as efficient as we can be in our lending. We believe that lenders will see an immediate effect on their money being matched. Meaning increased efficiency and more consistent rates from the changes detailed above.

A discussion around this change can be found in this thread.

Zopa is also changing the layout of the site. One change is that the visibility of the link to the Zopa community features, especially the discussion forum is reduced. Continue reading →

International P2P Lending Services – Loan Volumes March 2014 – Round Figures Crossed

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March brought growth for the major p2p lending services. Ratesetter managed to pass Zopa and Funding Circle in newly originated loan volume in the UK. I added one new service to the table. Note that I have switched the reporting currency to Euro as all but two services are located in Europe. Several p2p lending services reached major figures for total loan volume funded since inception:

I do monitor development of p2p lending figures for many markets. Since I already have most of the data on file I can publish statistics on the monthly loan originations for selected p2p lending services.

Table: P2P Lending Volumes in March 2014. Source: own research
Note that volumes have been converted from local currency to Euro for the sake of comparison. Some figures are estimates/approximations.

Notice to p2p lending services not listed:
If you want to be included in this chart in future, please email the following figures on the first working day of a month: total loan volume originated since inception, loan volume originated in previous month, number of loans originated in previous month, average nominal interest rate of loans originated in previous month.

Seven Players Join Forces to Promote Alternative Business Funding

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In the UK 7 innovative finance companies have joined forces and launched the Alternativebusinessfunding.co.uk website to inform SMEs what alternative funding methods they offer. Two p2p lending services Zopa and Funding Circle, two p2p equity (crowdinvesting) services Crowdcube and Seedrs as well as three other services Pension-Led Funding, Platform Black and MarketInvoice participate in this non-bank funders collaberation.
These platforms account for 85% of alternative finance for businesses market and have provided more than 580 million GBP to SMEs between them.

Screenshot

The information website works like this:
1. Enter the amount of funding you require.
2. After each question you will see the lights change dependant on which funder suits your criteria.
3. At the final question click on any green (or amber) traffic lights for your preferred funder details.
4. All that is left now is for you to approach your funder of choice about sourcing SME finance.