[Editor’s note: This is a guest post from John Goodall, co-founder and CEO of Landbay. Landbay is a gold sponsor and will be in attendance at LendIt Europe 2015 on October 20-21. In this post, he talks p2p lending going mainstream.]
As Peer-to-Peer (P2P) lending becomes an increasingly mainstream financial choice for a growing cross section of the public, it faces two major hurdles:
Firstly, building awareness so that more people out there know that a viable and attractive alternative actually does exist, and that it offers very competitive rates to savers/investors and borrowers. Although most of us working in the P2P sector might find it hard to remember the world before Zopa kicked off the whole phenomena in back in 2005, the majority of the public still hasn’t even heard of P2P lending, let alone considered using it.
No doubt the rapid growth of the sector on the back of those that are ‘in the know’, predicted to top £30 billion by 2022 (Equity Development), will help. The marketing efforts of the increasingly successful leading players will assist in securing this growth and in building the wider awareness that is still so important.
The second major challenge is creating sufficient comfort in the minds of the wider public that this new concept and these new brands – none of which they had previously heard of – are reliable and secure.
A crucial part of the success of P2P lending to date has been the ability of the first platforms to use transparency and openness as a proxy for the trust they need to succeed. The P2P concept does make logical sense, and taking the time to explain how it works shows clearly how and why it can offer better value.
But as the sector seeks to move increasingly mainstream, it will need to take that commitment to clarity and transparency further still. A wider audience – less engaged with financial services and less likely to be ‘early adopters’ – will need more reassurance and proof that the offer is not too risky for them and their hard earned money.
At Landbay we believe we have understood these challenges as well as any, and led the way over recent times in taking transparency to the next level. Last year, we took the unprecedented step of publishing full details of our entire loan book, right down to the granular level of each individual loan.
The move caused quite a stir, even in the open world of P2P lending. It was welcomed in the press and by bodies seeking to champion the success and growth of alternative finance. Since taking this step, we have been pleased that other platforms have chosen to follow suit. It is a very effective way to show potential lenders and borrowers that you really do have nothing to hide. Full loan book availability is now also an Operating Principle of the P2PFA.
More recently, we have gone further still.
We decided to put ourselves through in-depth Bank of England standard stress testing – the very thing that Banks have to go through to test their resilience and the level of risk they pose to their customers and the economy – and then publish the results.
To make the testing as robust and unquestionable as possible, we appointed an expert independent organisation – MIAC – to conduct the stress tests, using the same scenario criteria that the Bank of England sets for the Banks. The results of this work, carried out over many months and reported in a 72 page document, were published to the media and the world at large last month.
These results were impressive, and served as independent validation of our belief that we have built one of the lowest risk, if not the lowest risk P2P platform in the UK. Even under the worst assumptions made in the Bank of England stress tests, including a sudden 20% drop in property values and an unemployment rate rise to 10%, no lender lost any money through Landbay and the business remained solvent and strong.
Our hope, given the strength of these results in arguing the case for continued expansion in the take-up of P2P lending, is that more platforms will again follow our lead. We certainly expect to see others follow, and ideally this might build to the point where it becomes the norm for all P2P lending platforms to put themselves through this testing and to share the results. This is a chance for the whole sector to make its commitment to openness even more overt and tangible, and contribute substantially to building trust with a much larger audience.
John Goodall,
Cofounder and CEO of Landbay
