In response to Scaremongering and book Promotions…

Lord Turner certainly knows how to grab a headline. Speaking with all the authority of someone who knows a thing or two about disasters – he presided over one himself as the former head of the disastrous and now defunct Financial Services Authority (FSA) – he is now predicting that the P2P crowdlending market is destined to come to grief because of poor credit risk processes that are indigenous to the sector.

Predictably, the business Press have been only too eager to seize upon his gloomy assertions, made during an interview with the BBC, on the usual premise that bad news makes better headlines than good news. Don’t let the facts get in the way of a good story, etc….

His most explosive proclamation was that: “The losses on P2P lending that will emerge within the next five to 10 years will make the bankers look like absolute lending geniuses …..”

The first thing to point out is that, in terms of size, the UK’s P2P lending market is, for all its undoubted success, minuscule compared to the size of the whole market place; the major banks still control 90 per cent of lending to SMEs. The second point is that the credit risk processes in P2P lending are at least as thorough as they are with the majority of the banks. Indeed, many of the lending officers in the P2P sector used to work for banks in the days when they actually lent money to SMEs.

In ArchOver’s case, the process is actually far tougher because borrowers over our platform are obliged to cover their loan against default through credit insurance. No bank that I know does that as a matter of strict policy.

However, more important still is the fact that all P2P loans are matched; they have a set duration at a fixed rate agreed between borrowers and lenders. This sort of arrangement is in direct contrast to the banks which ‘borrowed short and lent long’ – precisely the toxic combination that led to liquidity problems and contributed hugely to the banking crisis.

Criticism is one thing, but scaremongering on this scale, especially from someone who should know better, is neither appropriate nor helpful. It is made worse by a blatant distortion of the facts.


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