As a p2p investor, I’m disappointed to see p2p platforms rolling back on transparency. When I started investing last year, all the platforms that I joined provide clear repayment records of all loans and the key information of each borrower. Within a span of less than half a year, getting such information has become almost impossible. For one platform, loan repayment records have become confidential. For a second platform, loan information are quickly removed once funding is completed. Finally, a third platform will not disclose the identity of the company seeking funds, even after the crowdfunding process is complete. Investors now can only see information relating to the loans they participated in; nothing more. In my view, such a development is a step back for p2p investors.
Now you see it, now you don’t
Why is loan information important to investors?
To begin, p2p lending is risky because many of the borrowers are SMEs, which are vulnerable to economic cycles. The p2p platforms – themselves – are young startups that do not yet have a solid track record of assessing SME risks. Hence, investors need information to make an informed investment decision about both the borrower and the p2p platform.
- Identity of borrower: Knowing the identity helps reduce the risk that an investor unknowingly lend to the same borrower on different platform. This is so that if a borrower goes bankrupt, an investor will not have multiple loan defaults from the same borrower.
- Loan repayment records: Knowing this gives investors an idea on the risk assessment ability of the p2p platform.
- Borrower information: Together with repayment records, investor can make use of this information to find out which are the riskier sectors or type of companies to avoid.
Is competition killing transparency?
But what is good for investors is hurting the p2p platforms. From what I understand, platforms are spying on each other to uncover good, credible borrowers. The moment one platform posts a loan from a new borrower, other platforms began to call the same borrower, offering lower rates and fees. Loan repayment record is also very valuable information. Therefore, it is not surprising that platforms are limiting disclosure to important information. Why would any platforms disclose information that would enable competitors poach their best borrowers?
Frankly, I find this a bit silly. In this day and age, there is no such thing as hiding your best borrowers from competition. As an investor, I will prefer p2p platforms to be competing on service standards such as default rates, risk-adjusted returns and turnaround time, rather than poaching borrowers from each other with a lower rate/fee.
Trust but verify
With less information available, the real losers are the p2p investors. I’m also not prepared to blindly trust that any platform will do a superb underwriting job. Not yet. I prefer to verify with hard statistics. After all, Lending Club – the world’s largest p2p platform – took several years to just to get its underwriting process right. It now fully discloses its loan statistics in a transparent manner.
To achieve a balance, I think MAS and the p2p platforms need to put their heads together to work out an acceptable solution that ensures that investors have access to important information and platforms can compete in a healthy way. I find the current situation quite unhealthy and I fear it may deteriorate once Singapore enters into a recession. If bad lending can be prevented through transparency, I think it is worth it.