Does Lendy Collapse Hint the Failure of P2P Loans Industry?

Investors started showing concerns over the P2P lending industry after Lendy has entered administration due to an ongoing investigation by the Financial Conduct Authority.

Founded in 2012, this lending platform offered guaranteed returns of up to 12% for investors. Unfortunately, they fell short of their promises amid higher default rates on its loans. Investing through Lendy was attractive a few years ago, but as its loan book matured, the problems with repayments and default issues emerged.

Before administration, over £90 million of loans defaulted out of £160 million of outstanding loans. The collapse of Lendy means investors had lost millions of pounds.

Does Lendy Collapse Means the Fall of P2P lending Industry?

Some market participants started showing concerns over the attractive rate of returns from P2P lending platforms.

Iain Niblock, chief executive of aggregator Orca Money said, “Troubled peer-to-peer (P2P) platform Lendy is an example of why investors in the sector need to be wary of chasing higher yields without fully understanding the risk involved.”

It’s certainly not true that Lendy’s collapse means the potential warning for investors. Though it would temporarily reduce investor’s confidence in P2P lending, but long-term fundamentals are strong for the emerging industry.

Several other lending platforms have been generating positive returns for investors with lower default rates. Lending Club, for instance, generated adjusted EBITDA growth 47% year over year in the latest quarter. Others P2P platform such as Funding Circle and Peer Street are also thriving; they have set a strong management system and easy repayment methods to reduce the default rate.

On top, the collapse of Lendy has pushed regulators to strengthen laws for P2P lending industry. The boards of the regulator are scrutinizing the risks; the FCA is expected to publish new rules in the following two months. New rules mean the regulators want to provide investors with “appropriateness test” prior to depositing cash.

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siraj sarwar

Based in Saudi Arabia, Siraj has a strong understanding of and passion for accounting and finance. He has worked for international clients for many years on several projects related to the stock market, equity research and other business, accounting and finance related projects. Siraj is a published financial analyst on the world's leading websites including SeekingAlpha, TheStreet, MSN, and others.
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