Madiston LendLoanInvest has launched a secondary market on its platform. This secondary market will give lenders the opportunity to cash in their loan parts early if they need to, giving both lenders and borrowers a fair deal.
“The secondary market in P2P loans is growing quickly and is fast becoming an attractive option for investors who want to participate in loans that are already running successfully. Our investors can “bid” or “buy now” in the secondary market and set up automated portfolios with their own lending rules and goals, giving them granular control over bidding on loan requests. For lending institutions, we have the system tools so they can satisfy their own demanding lending criteria alongside the individual investors on the platform.”
“We are capitalising on our flexible technology to develop the most compelling P2P consumer lending platform to meet all these different needs and primarily add value. Within a decade, with the prospect of becoming an eligible investment for ISAs, Peer to Peer Lending is expected to be worth an estimated £45 billion in the UK alone, so the industry will benefit by accommodating investors’ requirements in primary and secondary markets, efficiently and fairly.”
A lack of liquidity can be a huge problem for many investors in the peer-to-peer loans market. Many of the leading platforms have integrated secondary markets into their product in order to allow investors to exit their contracts early.
For example Funding Circle has a secondary market that allows investors to sell loan parts if needed. At the end of last year they reported that £77 million had been traded on their secondary market. About 50% of the business loans listed on the site are sold at par. Funding Circle has a tool on its site, autobid, which buys loans automatically for investors, however, it only buys at par so when loans are listed on the secondary market at par it will buy them, which means it takes half the time to sell a loan at par compared to at a discount or premium.
RateSetter have a function on their website called Sellout that allows an investor to exit their investments at anytime so long as there is another investor willing to take on their contract. Although, investors will have to pay an extra fee associated with this early exit.
Zopa offers investors early access to their funds through its ‘Rapid Return’ service. This is similar to the RateSetter model as for a 1% fee you can withdraw your money as long as there are other investors willing to take on your contract. Zopa also states that only loans with a good and up-to-date payment history can benefit from this service.
Although these ‘secondary markets’ do offer some liquidity for investors, it is quite limited. LendLoanInvest is still relatively small volume-wise and the secondary markets on the platforms will have the greatest impact when volumes are higher as there will be more loans and more investors want to buy in and sell out of them.