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The Lion, the Ass, and the Fox: Learn from the Failures of Others.

Aesop’s fables have been used to help teach children lessons and morals for hundreds of years. We have a look at what lenders and platforms within the P2P lending industry can learn from Aesop’s story about the Lion, The Ass and the Fox.

For those of you unfamiliar with this fable, here it is:

The Story: A Lion, Fox and Ass are all hunting together. They all gathered a huge amount of food and now had to decide how to divide it. The Lion asked the Ass to divide the food. So the Ass chose to divide the portions equally. This made the Lion, the king of beasts angry and with his paw he killed the Ass. The Lion then asked the Fox to divide the food. The Fox wasted no time. He quickly gave a huge heap to the Lion and only kept a small portion to himself. The Lion asked the Fox, who taught you to divide so fairly? The Fox replies, I learned from the Ass.

The Lesson: Learn from the misfortunes of others. Failure in life is okay, as long as you learn from it. Take a look at the mistakes of others and take note. It’s always important to reflect on what you could have done better or what steps you could avoid in the future.

2019 has been said to be the year of ‘the coming of age’ for the peer-to-peer lending industry. A number of high profile failures, new regulations and significant strategic shifts left the industry looking rather different by the end of the year than at the start.

Lessons for Lenders

1.Don’t jump to quickly

Approximately 3-4 years prior to 2019, the UK P2P industry saw a large increase in the number of new platforms entering the sector, all promising to be the best. Bolstered by significant venture capital and glitzy ex-City executives and the splendor of an unproven loan book and model, they attracted many lenders away from platforms that were more established. But by 2017 they started to show the battle scars and wrinkles of loan books that were maturing..

Many early adopters of P2P lending switched from the early platforms when their early high returns dipped as the inevitable defaults and bad debts hit their returns. Of course some of these switches to new platforms may have been successful, but others may have been fooled by the Emperor’s New Clothes. Many of these lenders that chose to switch did not consider that the then new platforms would too encounter defaults and dips in returns (as is the nature of long-term investments), and have to face the same trials and tribulations already being faced by the ‘older’ platforms.

2. Do your research

Unfortunately there have been one or two scandals in the industry where platforms have not turned out to be what they held themselves out to be, resulting in lenders losing money.

It’s important that before you enter into any new investments that you do your research into the platform or businesses managing these. A good first step would be to check that the platform is regulated and where they state so on their site, to check this against the FCA’s register. Look into the history of the platform, how long have they been around, what is their loan book performance like, what are others saying about them online?

3. Understand the type of investment

Many early investors in P2P were attracted by the high rates of return and did not consider the long term performance or outlook for their investments. This meant that when they started incurring some bad debts, which reduced their net returns, they felt scolded and betrayed. If they’d understood from the outset that P2P lending is a medium to long term investment strategy, they’d have expected initial returns to be high, but for these to be reduced somewhat as their portfolio matured and stabilised.

On rebuildingsociety.com for example, new lenders often enjoy net returns of 20% at first, but as their portfolio matures and stabilises, most of our lenders enjoy net returns between 5-8%.

Read about the typical investor journey

4. Bigger is not always better

The UK P2P industry is one of the most mature P2P markets in the world and has fostered the growth of some P2P giants. These bigger platforms boast hundreds of staff, millions in investment capital and for some, even shiny new racing yachts. 2019 taught the industry that bigger is not always better. The bigger the ship, the harder it is to turn.

Many of the smaller platforms instead of leveraging millions in marketing capital, are relying on their strengths in technology, innovation and customer experience to set themselves apart form the crowd.

Lessons for Platforms

If any P2P executive tells you that they managed to get through 2019 with no new grey hairs and that it was plain sailing, they’d be lying.

Interpreting and implementing new regulations on a rather short timeframe dictated by the regulator is one thing. It’s something that many platforms who’ve been round the block expected and, for the most part, are used to doing.

Dealing with the aftershocks that went through the industry after the failures of Lendy, FundingSecure, Collateral and London Capital Finance, was a new thing all together. Once the darling of the finance world, P2P platforms needed to set out explaining to long term investors, shareholders and stakeholders why they would not be ‘next’ and how they were different.

At rebuildingsociety.com we’re proud to be different, and we’re here for the long haul. Whilst many other platforms have chosen to reduce the transparency offered to investors, we’ve sought to increase it. We’ve worked hard to build diversified revenue streams, so as not to have to rely solely on funding loans.

We’ve aimed to connect with our lenders and find out what they want and how we can improve their investment experience and have innovated around our findings, resulting in the introduction of the BuyBack Guarantee, the DLA ISA and more.

What Fable Might be Relevant to 2020 in the P2P industry?

We asked around the office and here’s the three fables that our team predict might be most pertinent.

  1. The Tortoise and the Hare
  2. The Goose with the Golden Eggs
  3. The Crocodile and the Monkey

What do you think?

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