Over the last few years the top three peer-to-peer (P2P) lending platforms – Zopa, Funding Circle and Ratesetter – have grabbed the limelight. They’ve dominated the news headlines and captured a disproportionately large share of the money coming into the sector. But there are some very worthy second-tier players who warrant attention, especially from the more experienced investor in search of a decent yield. Two in particular stand out: Assetz Capital and Folk2Folk.
Assetz is the bigger by some way. It has lent out £355m to date, while Folk2Folk has lent £176m. But they have several things in common. Both emerged from the “old world” of finance and lending. Assetz was set up by experienced property-market entrepreneur Stuart Law. Folk2Folk meanwhile, was set up by Cornish law firm Parnalls, which had been running a private mortgage book for many years. Both spotted an opportunity in P2P lending and moved fast, building businesses based on the personal touch. Assetz employs regional representatives who visit business customers and make credit risk decisions; Folk2Folk has physical branches – these are mainly in the southwest, but it has recently expanded into North Yorkshire. Both lend to small businesses, and both lend only on a secured basis.
In each case, the record of defaults and late payments is pretty impressive. Folk2Folk says it has had no defaults and only a few late payments. Assetz has had slightly more defaults (current arrears over 45 days stand at 0.52%, although this went as high as 0.89% in 2014). Nevertheless, its losses to date do seem manageable. Those numbers will, of course, change in any future recession.
Assetz has stress-tested its default estimate and reckons it should allow for a four-fold increase in defaults, which is reasonable. Assetz is using that number to help manage a provision fund which aims to soften any losses to investors that result from defaults – on this basis no investor has yet lost money from defaults or arrears. Folk2Folk does not offer a provision fund.
Both platforms offer a sensible choice of investments. Assetz has the biggest range of accounts, paying between 3.75% and 7% a year. The differential is largely accounted for by the duration of the investment – the easiest access account offers the lowest rate. Folk2Folk offers products paying between 5.5% and 6.5% a year – all of its loans have at least a 60% loan-to-value ratio. Folk2Folk offers its own innovative finance Isa (IF Isa), while Assetz says its own IFIsa is coming soon.
All of these accounts are at the higher-risk end of the market, so returns are not guaranteed. The real measure of success will be in a downturn when defaults and late payments will almost certainly shoot up – and the quality of past lending decisions will be put to the test.