By Ryan Weeks on Tuesday 11 October 2016
Lord Adair Turner, former boss of the City regulator, issues correction to comment that peer-to-peer losses would make “the worst bankers look like lending geniuses”.
Lord Adair Turner (pictured right) now believes that peer-to-peer/marketplace lenders assess credit “at least as well” and in some cases better than the incumbent banks. This comes despite Turner’s comment from February this year that “the losses which will emerge from peer-to-peer lending over the next five to 10 years will make the bankers look like lending geniuses”.
Speaking at today’s LendIt Europe conference, Turner clarified that his earlier comment had been a hastily-made, out of context statement which occurred at the end of an interview that he believed to have finished. The comment had been made in answer to a question about whether the so-called “wisdom of the crowds” – i.e. loan-by-loan due diligence conducted by individual investors – would ultimately come to replace the credit assessment processes of the high street banks.
Today, Turner clarified that while he stands by his answer to the question that was originally put to him, he understands that individual due diligence is only a “very small part” of credit assessment within the peer-to-peer lending sector. Turner acknowledged that individual investors are in fact heavily reliant on the credit assessment processes of the platforms themselves, and for the most part invest via pooled instruments – groups of loans which are tiered by the platforms according to their respective risk.
But the former boss of the FSA went further still, stating that direct lenders are able to assess credit “as well or better than the incumbent banks”. He said that he does not subscribe to the notion that peer-to-peer/marketplace lenders have fundamentally changed the credit assessment process, but suggested that they are able to improve on established processes in some cases.
Turner also said that peer-to-peer lenders are providing “superior customer service”. He said that the fact that direct lenders hone in so closely on specific customer segments allows them to apply technology and advanced data analytics more effectively than the banks, while delivering “better or faster customer service”.
Turner further argued that there’s “nothing new” about non-bank lending, citing B2B credit in China as a longstanding example. However, he acknowledged that the non-bank sector has expanded to encompass new audiences over the past decade, and that this new market is likely to become a significant and stable part of the financial services sector in the coming years.
His final message to peer-to-peer lenders was simply: “keep it simple, and keep it transparent”.
Commenting on Lord Turner’s speech, Funding Circle co-founder James Meekings said: "We welcome Lord Turner's comments this morning and agree that done well, direct lending does not pose systemic risk and is likely to become a stable, significant and useful part of our credit system. We have always kept it simple and transparent at Funding Circle – investors know who they are lending to and we publish details of every single loan ever originated through the platform."
Kevin Caley, founder and chairman of ThinCats, added:“It was encouraging to hear Lord Turner clarify his views on peer-to-peer today, which he referred to as a ‘stable and significant’ part of the UK’s lending environment. In his speech, he emphasised the value of keeping the peer-to-peer model as simple and transparent as possible. This simplicity is a quality we’re determined to maintain. As the industry grows up, it’s tempting for platforms to establish banking-style models, but by doing so, you lose the very essence of what makes P2P different and attractive."