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Funding Circle Firing on All Cylinders!

There has been plenty of debate recently about how the increased deployment of institutional capital in UK marketplace will affect investor returns. Indeed at both the AltFi Global Summit and Lendit Europe there were specific sessions that focused on this topic. As one of the UK's largest platforms, Funding Circle is attracting its fair share of institutional capital. Last month we took a look at Funding Circle’s growth in origination of whole loans, typically favoured by institutional investors. We found that having only started offering the product in May of this year, whole loans now made up just under 30% of the platform’s September volume. This percentage continues to creep higher with whole loans making up just over 32% of the platform’s October volume. Funding Circle’s overall monthly lending volume has also increased recently, with the last three months seeing successive volume records surpassed.

Sam Griffiths

18 Nov 2014

So, with this increased supply of lenders, basic economics says that we should see lending rates trending lower, right? Apparently not. We’ve plotted the 30 day moving average gross interest rate for Funding Circle’s five risk bands on the chart below. Institutional investors and retail investors alike are enjoying record or near record gross interest rates across the five risk bands. All this whilst the Platform is able to boast record volumes. Win win!

30 Day Moving average gross interest rate

Current

Maximum

Minumum

A (Low risk)

9.76

7.02

A+ (Very low risk)

8.35

8.97

5.70

B (Below average risk)

11.08

7.87

C (Average risk)

11.81

12.09

8.68

C-

13.15

11.50

Funding Circle appears to be managing its supply and demand expertly. With the current shift in rate pointing to a deeper pool of demand from borrowers than many had anticipated/feared. Perhaps the partnership that the platform forged with Santander earlier this year is beginning to yield dividends? Samir Desai also revealed in his Keynote at this week’s Lendit Europe conference that the platform is continuing to improve its credit modeling techniques. So in theory, net returns should also be increasing.