Hargreaves Lansdown may be looking to make a play for involvement in the peer-to-peer lending space.
The online investment platform is reportedly giving serious thought to the idea of allowing its clients to deposit funds with a peer-to-peer lender. ISA inclusion – the promise of 5-15%, tax-free interest rates – has clearly served as a persuasive lure. We’re hearing that Hargreaves has spoken to a number of platforms about a potential hook-up – one of which has been confirmed as the ever-active RateSetter. Hargreaves Lansdown is home to 662,000 potential investors.
Danny Cox, Head of Financial Planning at Hargreaves, explained the situation:
“At this stage we are fact-finding and looking at a number of different options. P2P is a relatively immature but rapidly growing market. It’s one we are taking an interest in. We can see that alternative lending is becoming an increasingly popular investment for clients.”
Hargreaves still harbours some concerns about the sector – particularly around the matter of provision funds. The investment specialist supposedly questions the capacity of these contingency plans to endure in a less benign economic environment. In such conditions, the platforms will likely live or die on the strength of their underlying credit processes – and that’s probably what Hargreaves will be looking to gain an insight into.
It would seem as though a peer-to-peer lending tie-up might creep over the horizon before long, but we can be fairly certain that no such arrangement will materialize in the short term within the equity crowdfunding sector. Peter Hargreaves, Founder of Hargreaves Landsdown, went out of his way to cast aspersions on the crowdfunding phenomenon in an article published in late June 2014:
“In my opinion this is one of the riskiest homes for an investor's capital.
The chance of success of most of these enterprises is, at best, minimal. Even the ones that don't fail are unlikely to create much reward for the investor, unless the business can be sold on or the original proprietors can buy them out. Invariably the stake you buy is too small to compensate for the risk - many enterprises only make 5% of equity available in return for substantially funding the operation.
Businesses usually only use crowdfunding when all other avenues have been exhausted. Many companies seeking crowdfunding are start-ups - the least likely ventures to succeed.”
When explaining the motivation behind potential involvement in the peer-to-peer lending space, Danny Cox pointed to a commonality between the Hargreaves customer base and active P2P lenders:
“It’s people who have money to invest, private client investors – very much the same types of people who are using Hargreaves’ Vantage platform.”
Certainly these are the same “private client investors” that fund the majority of deals within the equity crowdfunding sector. But for Hargreaves the main issue appears to be one of pricing. Besides, when dipping one’s toe into the alternative finance space for the first time, peer-to-peer lending is an understandably sensible place to start – thanks to generally lower risk levels and much more stable returns. We’ll keep you up to date with Hargreaves’ movements.