Once again, we find mainstream media treating the diverse alternative finance sector as one homogenous group and misleading or alarming investors in the process.
This time, we have Ruth Lythe of the Daily Mail launching with a headline on 7 June, “MPs attack risky online firms offering 7% returns from lending savers' cash to strangers to buy cars and even phones”.
The article refers to Zopa’s recent announcement of its point-of-sale partnership with Unshackled.com.
In essence, the article can be summarised in one of the lines within it: ‘P2P loans are risky’. This is written without providing any context for the reader, which is both naïve and does a great disservice to existing and potential investors.
- A comment on the losses experienced to date by peer-to-peer investors would have been good (they are below what the banks accept as ‘normal’ and are published by the largest platforms in the smallest detail for all to see, which is something the banks never do).
- A comment on the variety of models available in P2P would have been helpful too, rather than bracket everything under one, doom-laden label.
Of course a judgement has to be made when investing in peer-to-peer. Judgement is required in most forms of investment, but what really matters and needs explaining when making sweeping assessments of this nature is how the likelihood of loss is mitigated and managed, which differs from platform to platform.
In the case of Archover, all business loans have to pass the scrutiny of not only our own lending specialists, but also those of leading credit insurers, who provide cover on the underlying asset that we use as security. If we were even tempted to lower our standards we would not be allowed to do so. I know of no bank that can provide that same level of comfort.
In other parts of the market, RateSetter and others have provision funds which cover all losses. This means that, to date, nobody has ever lost money lending over their platforms. The banks rely on the good old UK tax payer for such a guarantee.
I think I speak for the entire industry here when I say the FCA is doing an excellent job in making sure investors are as informed as possible about the nature of their investments.
Andrew Tyrie’s letter to the FCA on behalf of the Treasury Select Committee is perfectly reasonable and I have no doubt the Regulator will provide a full and well considered response in good time. This will no doubt include some of the facts, such as net returns for investors after default being in the range of 5%-7% since the inception of the industry, the never before seen level of transparency in financial services and the resilience of the sector to economic shocks – even against the most stringent scenario laid out by the Prudential Regulation Authority (PRA).
The Regulator will certainly have our full backing if even more improvements can be made to help investors.
As an industry, we do not criticise the Daily Mail or the media at large for advising caution, but we do implore it to examine the facts and make a more rounded assessment on behalf of its readers.