Note: I have not personally invested in The Money Platform and this post is largely a write up of my ‘working notes’ to decide if I will invest.
The Money Platform is a new peer-to-peer lending platform which connects investors directly with individual ‘pay day’ borrowers. Borrowers apply for loans between £250 and £1000 at 0.3% to 0.7% interest per day. These loans are then sold individually to investors via the platform. Loan terms are from 3 to 12 weeks and are non-compounding. Given the typical borrower and as there is no underlying security, these are the very highest risk loans and I would recommend P2P lending newcomers to be extremely careful.
First written: 11th Nov 2016, last updated 10th Feb 2017
Expected Returns: 12% per annum (The Money Platform’s own estimate: link here).
Provision Fund: No
Sell Out: Unclear, I think not
Minimum Investment: £250 (per loan)
Innovative Finance ISA: No
Who Are The Money Platform?
The Money Platform launched in September 2016 and were members of the FCA’s incubator scheme, which gives support to innovative new Fintech businesses. According to Companies House, their parent company Gracombex LTD was incorporated in January 2015 and The Money Platform website a short while later in May 2015.
How Does It Work?
The Money Platform provide high interest rate, short term loans between 0.3% and 0.7% per day. These are commonly known as pay day loans which became infamous in recent years due to the damage they did to desperate borrowers paying incredibly high annualised rates. In 2015 the FCA introduced legislation on all payday lenders which:
- Limits missed repayment fees to £15
- Limits daily interest at 0.8%
- Limits total interest to 100% of initial loan amount
The Money Platform stay under these limits, with the missed repayment fee of £15, max daily interest of 0.7% and a max repayment of 59% interest on a 12 week loan.
Investors receive a proportion of the interest, with the rest going to The Money Platform as fees. The fees are 35% of interest, with the remaining 65% going to lenders.
How Can I Invest?
Unlike the majority of the reviews on this blog, I am yet to invest in The Money Platform myself. I have registered however and can show the basic investment portals that you see once you join. Investors have an ‘offers’ dashboard which breaks down the 4 possible loan amounts (£250, £500, £750 and £1000) against loan terms from 3 to 12 weeks:
Once you click on one of the ‘+’ symbols, you can decide which rate of interest to make lending offers at:
In my case I had no money deposited and it would not let me make an offer. I am not sure if you can make offers on several different loan terms with the same £250 for example.
Is it Moral to Lend at Such High Rates?
As interest is non compounding, the highest possible annualised interest rate for borrowers is the 3 week at 0.7%, which works out at 14.7% interest for the 3 week period. Assuming a borrower would repeatedly take these same loan terms + previously accrued interest over a year, this would theoretically cost 100% * ( ( 100 + 0.07 * 21 ) ^ (365/21) -1) = 985%.
In practice you would hope that the loans would just be used over a single loan term to satisfy a short term pressing need. I did a little googling around for payday loan rates set by other companies, and many seem to stick to the maximum 0.8% legislated by the FCA. In this sense, if The Money Platform is giving some loans out at lower rates it is a step in the right direction.
I was recently working on a personal project: an automated script that I wrote to identify and track peer to peer lending sites and monitor their ‘authority’ in google over time (you can see it in practice here). For this I had to manually categorise hundreds of websites that were being thrown out by the script, the vast majority of them payday lending sites. What I grew to dislike after looking at many of them was the method often used to target borrowers. A typical website homepage was a stock image of happy, carefree people enjoying music in the sun. In my mind this makes up a small proportion of the people who use payday lending sites. For me, a more fitting image would be someone who’s car had broken down and needed some emergency cash to fix it to get to work for the rest of the month. On the borrower’s section of The Money Platform, they’ve gone with a holiday image of a young couple relaxing on the wooden pier of an exotic beach. I am not sure how much I could enjoy my holiday if it was racking up interest of 0.7% a day!
On the other hand, you can view The Money Platform as a step in the right direction, with rates starting at 0.3% per day. Kevin Allen, the chief risk officer of The Money Platform wrote a recent guest post for p2pbanking.com which addresses some of these concerns. He writes:
[The borrowers] are often excluded from mainstream financial services … often stuck in the middle of the non-approving bank and the rip-off loan shark. … The Money Platform does not lend to potential borrowers that have demonstrated financial difficult such as defaults, is currently in arrears or over their credit card limit. The Money Platform is a “clean lender”, it isn’t sub-prime or exploitative.
Risk and Default Rates
The Money Platform conduct checks to vet borrowers. Their website advises borrowers that there will be checks on:
– Your existing levels of secured and unsecured debt
– Your existing monthly repayments on secured loans
– The amount of information in your credit file
– Evidence that you’ve repaid previous credit on time
– The affordability of the loan in your circumstances
– Your reported credit score
Separately they estimate default rates at 7%, which they claim is “based on modelled default rates on historic loan data tested on The Money Platform’s current lending criteria”. I am no expert in pay day loan default rates, but 7% seems very low.
Sticking with their 7% default rate, taking the average loan term (6 weeks) and the average interest rate (0.5%), a worked example on 100 loans:
First Period: 100 loans: 7 default, 93 pay back capital with 13.65% interest (42 days * 0.5% * (100% – 35% fees)).
Balance After 6 Weeks: 100% – 7% + 13.65% = 106.65%
Annualising this with 1.0665^(52/6) gives an annual return of 74%. This is far higher than their 12% expected rate of return.
The Lending Well
By targeting payday loans, The Money Platform is offering something new for today’s UK peer-to-peer lending market. However, it is not completely new. Payday P2P lending was tried before in 2012 by The Lending Well, you can browse an archived version of their old website as it was here. There’s a number of key differences between the two propositions:
- The Lending Well charged 1% per day, The Money Platform charges a max of 0.7% per day. You would hope they have additional checks to target only lower risk borrowers (Good).
- As far as I can tell, The Lending Well paid investors just 0.033% per day (12% per year pro-rata’d on invested money), whereas The Money Platform pay investors between 0.2% and .45% per day (Good).
- The Lending Well had a compensation fund that paid investors if loans were 90 days late in repaying. This fund was intended to be paid for out of company profits. The Money Platform does not appear to have any protection against defaults.
- The Lending Well allowed investments of £10 per loan, The Money Platform has a minimum of £250 per loan (Bad).
The lending well justified their high costs by the work they had to go through to check potential borrowers. Even with such huge fees they were unable to sustain a business. This may mean it is incredibly hard for The Money Platform to build a similar business in an even harder pay-day regulatory environment.
This is a very new platform, and the lack of track record adds even further risk to what is a high risk investment proposition. There is no data on the website about historic default rates or how they came to the expecation of 12% returns. The smallest loan you can make is for £250, so spreading your money across 50 different borrowers would require at least £12,500 invested overall. Whats more, I imagine the smallest loan amounts will be the most highly sought over as investors look to diversify risk, so there may be an additional investment time lag or a downward pressure on rates.
The Money Platform Investor Reviews
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