UK-based Folk2Folk, a P2P lender supporting local and rural businesses, notes that “shifting sands” within the peer to peer sector have left some retail investors “high and dry.”
Folk2Folk reveals that some retail investors have been “abandoned” in favor of institutional investors. There have also been reports of “the surprise introduction of new fees; of platforms pausing investment activity; and of secondary markets being closed drowning any chance of liquidity,” Folk2Folk confirmed.
As mentioned in a blog post by the P2P lender, the updated regulatory guidelines introduced in December 2019 and the Coronavirus crisis presented “sink or swim” challenges for platforms. Some platforms “successfully rose to the challenge” while others decided to change their business model in order to continue offering services during these unprecedented times.
As noted by Folk2Folk, the Financial Conduct Authority’s (FCA) updated measures were designed to “protect retail investors.” Among other things they “required platforms to ensure investors were aware of and fully understood the risks of investing and raised the bar on reporting disclosures,” Folk2Folk added. The extra effort, logistics and costs involved have been “cited by some as a reason to withdraw from accepting retail investment,” Folk2Folk claims.
“[There have been reports] of platforms who have closed to retail investors: in February 2020 Orca closed to retail customers, in June Propifi suspended its P2P platform and closed its IFISA; and then in September, RateSetter closed its doors to new retail investors following its acquisition by Metro Bank. From 2nd April this year, RateSetter will be returning capital and interest earned to its retail investors who are no doubt currently looking for an alternative investment opportunity offering attractive returns.”
The COVID-19 pandemic has also taken a toll on some in the sector, Folk2Folk added. In July last year Growth Street wound down its operations; larger platforms such as Funding Circle and LendingCrowd suspended retail lending last year, and decided to start focusing on providing loans under the Coronavirus Business Interruption Loan Scheme (CBILS) which are funded “only by institutional money,” Folk2Folk noted.
“So where does that leave those who invested via these platforms, and retail investors in general? In a strong position to shop around is the simple answer. When compared against other investment options, and in the current environment of stock market volatility and low interest rates (with negative interest being touted), P2P/Marketplace lending remains a very appealing option as part of a balanced investment portfolio.”
The P2P lender also mentioned:
“We’d argue that platforms like FOLK2FOLK, who offer a fixed interest rate of 6.5% p.a. and secure the investment against the tangible assets of land or property, are certainly worth a look.”
While many other platforms have “cut their retail investors adrift, we extend a welcoming hand,” Folk2Folk noted, while confirming they’re still open to retail investors and “intend to remain so.”
Folk2Folk further noted that they implemented and “welcomed the new regulatory steps without issue and remained open throughout the pandemic.” The P2P lender pointed out that they did “not take advantage of the Covid situation to increase or introduce new fees for our investors; it remains free to sign up and enter into an investment via our platform.”
“We’ve seen record buying levels within our secondary market as investors are attracted to our loan investments, creating liquidity for our investors. Currently we’re sold out; with are no loans for sale via our secondary market, though borrower demand remains high so there is plenty of opportunity for investors via our primary market.”
During the past eight years, Folk2Folk investors have funded over £400 million worth of loans “without losing a penny of capital,” the company revealed. Many investors also choose to invest tax-free via the firm’s Innovative Finance ISA (IFISA) which “pays out tax-free interest monthly, providing investors with a monthly income,” Folk2Folk noted.
The company also mentioned that if you’re interested in adding an income generating investment to your portfolio, or you have previously invested via a P2P platform that’s no longer accepting your funds, then Folk2Folk would like to invite you to “consider investing” through their platform.