Firms’ priorities are changing as the peer-to-peer (P2P) lending market adapts to a fast-changing and uncertain environment. Andy Charters explains why access to good data is critical when reviewing strategic options.
Strategic priorities are shifting
The P2P lending market has had to weather a difficult climate in 2020 – with the COVID-19 pandemic, multiple country lockdowns and changing regulations affecting every facet of the business. Many firms are having to reassess their strategic direction as a result.
An example of this is the question of retail versus institutional investment, as many firms re-examine their funding models. Coronavirus Business Interruption Loan Scheme-accredited P2P platforms have had to move to an institutional-only funding model to participate in the scheme – most recently LendingCrowd in September. Of the CBILS-accredited P2P lenders, only Folk2Folk and Assetz Capital have undertaken to retain their retail investors in the future. Other platforms, such as CrowdProperty remain committed to retail investment. The firm announced on 28 October that, while approximately half of funding comes from institutional capital, retail investors will continue to play an important part in the platform’s growth1.
Many other strategic questions remain as management teams mull portfolio changes due to market conditions, such as running off a loan book, a sale of a particular loan portfolio or even to sell the platform as a whole.
Good data, good decisions
Whatever decisions management need to make, a common factor remains: the need for good data. Detailed, trustworthy data and near real-time reporting has become essential. And this enables management to make evidenced-based decisions.
The current environment makes it challenging for any business to make decisions but being decisive is important in the face of strong external market pressures. Acting decisively does not mean acting recklessly or making rash decisions, however. It is critical to base your decisions on high quality data – data that will help you to make quick decisions under pressure with a greater degree of confidence.
Having a good cache of data means that when an unexpected event – for example, a coronavirus pandemic – occurs, P2P platforms can make informed decisions quickly and can ensure stakeholders can buy into those decisions. An analysis of the data might mean that a P2P lending platform can target a different investor base or a loan book can be sold for a higher price before external factors cause defaults to rise and devalue the entire platform.
Selling a P2P portfolio or platform
For sales of a business or disposals of loan books, access to quality data is especially valuable. Many firms can underestimate the importance of getting their house in order before going to market. This might sound like basic advice but we often discover that the data is not always as good as management thinks it is. What you can be certain of, however, is that investors looking to buy these types of assets will be data hungry.
Good data will enable timely decision-making. Businesses that are not able to make decisions at the right time often find themselves running out of options, and no longer able to control the process. Thinking in terms of a decline curve, the further a firm moves down the curve, the fewer the options available. Taking early action can result in a positive outcome for P2P platforms.
Having an external perspective that can provide advice and challenge can be valuable to a board and a management team struggling through this environment. Consider speaking to people who have managed through crises before and can provide management teams with valuable extra insight.
For more information, contact Andy Charters, Financial Services Restructuring.
A shorter version of this article first appeared in P2P Finance News magazine