Heads of a number of peer-to-peer lending platforms have hit back at scathing comments made against the industry by a former regulator.
Earlier this month, the former chairman of the UK financial regulator Lord Adair Turner criticised the peer-to-peer industry, warning it could be the cause of “big losses” due to its lack of good quality credit underwriting.
Christine Farnish, chair of the Peer-to-Peer Finance Association (P2PFA), said these comments were made “off-the-cuff” and, from her understanding, were later regretted by Lord Turner.
During a P2P conference last week, various heads of P2P lending platforms addressed the former Financial Service Authority chairman’s criticisms and explained how they manage credit risk on their platform.
Nick Harding, chief executive of Lending Works, said he would be “staggered” if any bank or building society were doing anything more than the credit underwriting processes the P2P platforms are doing.
He said: “It starts with employing the best people to build credit models and systems and do the credit underwriting. The vast majority of the people doing this have been head-hunted by banks.
“We have spent a huge amount of time and effort making sure those systems are as efficient and robust as possible.”
Rhydian Lewis, chief executive of RateSetter, said Lord Turner’s criticism referred mainly to small businesses and automation.
He said: “Everyone would accept that consumer credit can be very heavily automated, but if you ask me I suspect most banks are automated more than Ratesetter.
“With small businesses lending, we talk to them and make sure we get all sorts of financial information from them.
“We visit a lot more of them than most banks would consider worthwhile visiting, so I think it is a very different process to what Adair Turner thinks is running behind the scenes.”
Anil Stocker, chief executive of Market Invoice, said risk management is crucial to the value of the business but added he “categorically disagrees” with the idea of visiting businesses.
He said it is far more important to check the data online.
“We have been through multiple iterations of our risk model and we’re using cutting edge technology and data,” he said, claiming he is collecting more data sources than any bank underwriting system.
Mr Stocker also claimed platforms are more transparent than existing financial institutions.
James Meekings, co-founder and UK managing director of Funding Circle, said the challenge was partly that all P2P platforms are so different.
“The truth is, on the small business side you can automate some things and not others,” he said, describing the Funding Circle process as data-rich process, while also using the expertise of 30 underwriters.
“I think the comments become dangerous when people start to see the industry as a whole and confuse consumer lending with business lending.
“The challenge is on us; we are not sitting here defensively seeing these as bad comments. The challenge is educating people again and again, and every time the industry grows it goes up a notch and we have to educate more and more people.
“On one side that’s frustrating, and on the other side it’s a sign of the industry growing.”
Christian Faes, co-founder of LendInvest, said his firm works in the same way as a mortgage lender.
He said: “You are never going to get to the point when a computer spits out a mortgage, so it is about having good people that are hugely experienced in the industry.
“We have a human looking at every loan we do, though we are are using technology to do things in a more efficient way.
“I think Lord Turner’s comments were a broad generalisation and were largely based on a misunderstanding of how we operate.”
Giles Andrews, chief executive of Zopa, said lending to businesses can sometimes get over-exuberant and is therefore something lenders should be “extraordinarily aware of”, adding it is down to the platforms to make sure they are not guilty of over-lending.
katherine.denham@ft.com
