Thoughts On Lendy And BondMason Closures
This is just a brief note on the two recent P2P lending site closures.
Lendy has closed after lenders suffered a high amount of late and bad debt, as well as very expensive legal problems, among other things. (I wrote about some of its issues last year in Lendy Sends Shockwaves But No Surprises.)
BondMason announced this week it is just starting to wind down gently after failing to compete and cope with its rising costs of its model of lending.
It emphasised its projected difficulty of signing up enough of an attractive future borrower pipeline that is willing to pay good enough interest rates, due to competing lenders.
Although other P2P lending sites have continued to find similar borrowers to pay fairly constant interest rates, it is highly admirable if BondMason is closing because it sees it can't compete.
The greedy, head-in-the-sand option would be to lower interest rates and keep collecting fees as the middleman, or to extend lending to riskier types of loans that BondMason and its lenders don't understand. Not all P2P lending sites behave with that level of responsibility.
Different reasons, but no surprises
It is not surprising whensites close down, which happens from time-to time. In the case of these two, the closures are particularly unsurprising. Even though they are very different kettles of fish, they have one thing in common.
Any type of investment – whether its shares, property, P2P or something else – all types of investment suffer a proportion of offers that fail to be transparent about their people, processes, missteps or results. Lendy and BondMason were like that too – at least regarding lack of disclosure to 4thWay.
While there are bound to be some good opportunities that are shrouded in mystery, it is typical of a great many opaque investment opportunities for them to fold.
Indeed, every one of the most notable closures since the beginning of P2P lending have been from opaque, sometimes secretive and misleading, providers. (The less notable closures have typically wound down so gently that they were hardly noticed by the press.)
Opaque investments also often land investors with losses before closing. The good news for BondMason lenders is that it doesn't appear to fit that particular mould; it states that it has returned £2 million in profits to its lenders, none of whom have lost money, it says.
The lesson to learn
Is it clear who the people making important lending decisions are at the P2P lending site orprovider? Does it seem that they genuinely have a lot of the right kind of experience in the kinds of lending they are offering? Are their lending and bad-debt recovery processes clearly explained? Do they share a large number of statistics and facts about the results of their loans?
Those are the basic first questions to look into. Even before you try to understand what any of it means and dig deeper: is there clearly a lot of information on offer?
Investors shouldn't touch opaque investments with a barge pole and should focus on the ones that overwhelm you with lots of clear information and statistics on their results and all aspects of their business. That's a nice easy, simple rule. It makes it simple for investors to avoid most of the worst investment opportunities with little thought.
Principle One. If there's any doubt about lending at all, the answer's “No”. Only lend when you are supremely confident you understand all the risks.
Principle Three. Treat buried information as if there's a reason, missing or ambiguous information as if it contains bad news, and decreased information as if it contains worse news. Demand more verifiable information the less that is provided freely.
Principle Five. If something smells fishy it just well might be. Trust your warning instincts, those little alarms and feelings in your belly. Don't let beguiling interest rates confuse your nose; sniff around for more pleasant smells.
4thWay is a useful filter for you
4thWay never listed or reviewed Lendy or BondMason, because neither ever came close to providing us with the level of information that is required to assess the risks and rewards.
Lendy never provided the public with enough information either (and my colleagues and I judged its limited statistics to be deeply misleading). I'm personally less familiar with BondMason, so can't speak of the level of public disclosure it had before closing down this week.
So far, no provider that has closed since P2P lending began has been listed on the 4thWay site. That won't always be the case! Not least because we review poor performers as well as good ones. But lenders can expect a much, much better hit ratio from providers that submit themselves to highly detailed and expert scrutiny and interview.
Update on 1st June, 2019: I stand corrected. One (luckily still very happy) 4thWay user, whose memory is better than mine, has corrected me that a P2P lending site that was listed on 4thWay went the same way as BondMason. UK Bond Network closed its doors to arranging new loans in February 2019 and it has transferred outstanding accounts to a new owner. As far as I'm aware, UK Bond Network investors are still receiving their repayments and interest – although the new owners, I'm told, are not as transparent as their predecessors.
I think, over time, you'll also have an even better chance of being paid back every penny of your money and interest owed to you when a 4thWay-listed P2P account andprovider closes.
Remember our number one, absolute, golden, unbreakable rule: spread your money across 6-12 different P2P lending sites, and hundreds or even thousands of loans. This is the biggest thing you can do to greatly reduce all the risks.
Principle Four. Spread your money across lots of loans and P2P lending sites, and across other investments too – not just P2P.
What will happen to Lendy and BondMason lenders?
When transparent and open sites close, the prospects of an orderly wind down with minimal or no losses to lenders is high.
With opaquesites it's generally harder to say, although, as far we can see, where no fraud has taken place, lenders have so far usually got back most of their money.
Lendy's troubles are unusually complicated, as its lenders are thoroughly aware.
Although it's very early days for BondMason, I've not heard any rumours and I think at the moment that lenders can calmly believe them when they talk about an orderly wind-down of existing loans that pays them back plus interest, after what seems like a profitable history for all of its lenders.
The past has shown that this is to be expected of a P2P lending site that is closing with no turmoil or scandal, while at the same time offering existing lenders lots of information about its wind-down plans and opportunities to find out more.
My best wishes go out to any existing lenders out there.
Get a really good P2P lending strategy going by reading our 10 Core P2P Lending Guide pages.
Independent opinion: the opinions expressed are those of the author and not held by 4thWay. 4thWay is not regulated by the ESMA or the FCA, and does not provide personalised advice. The material is for general information and education purposes only and not intended to incite you to lend.
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