The L Word

Calling this article ‘The L Word’ may have baited some fans of the TV show about the lives and loves of a group of lesbians and bisexuals in Los Angeles to view this article. I apologise that I cannot give you any insight into that TV drama, but the online lending industry is having its own dramas to which my article refers and the L word in this context is Liquidity.

Inevitably when things go wrong there is a lot of ‘I told you so’ going on from commentators of any industry. These are the same voices that label any innovation ‘dangerous’ that may have ‘unknown consequences’, and of course occasionally they are right and use this to cement their ‘industry expertise’. Even a blind squirrel will eventually find nuts in a forest.

However, in the P2P lending market, amongst those voraciously picking over the remains of Lendy and pointing towards the entire industry as an issue, there are voices of sense.

Angus Dent

Angus Dent of Archover, in the P2P Finance news, talks about making risks clear and upfront and says that ‘risk is not a dirty word in the context of reward’. This is one of the more sensible comments I have heard recently. I can wholly concur with Angus in that making risks clear is something that should be an ongoing thing, and we should educate lenders more on our products and the risks they hold. Ablrate, for one, is working on our response to the Appropriateness Test and using this as an opportunity to educate users. We are planning a tour on our new user interface, that will test appropriateness but also educate and data will be at the centre of the new platform.

Angus discusses liquidity of assets backing loans and I know where he is coming from, when an asset-backed deal goes wrong it isn’t always easy to liquidate the asset and that should be made clear. He goes on to say that “Neil Woodford has demonstrated that shares in unquoted companies can also be hard to shift in a fire sale. Investors in H2O Asset Management have had the same problem”

Mark Cuban

Mark Cuban recently said “….the only thing worse than a market with collapsing valuations is a market with no valuations and no liquidity” and Angus Dent says “liquidity isn’t a given, and it isn’t good business to allow investors to believe it is”.

However, we are a tech, and we solve problems and clearly our problem is liquidity.

Yes, you may not be able to liquidate a property the day the loan defaults, and the economy may have moved against your valuation, but there is one constant and that is that someone, somewhere, will offer you a price. They are not doing it out of charity, they offer you that price in anticipation of profit. It is also so that the more people that have the opportunity to offer a price the fairer the price you will receive. It is how markets work now and will always work.

Customers want better returns, they deserve better returns, giving people better returns has global consequences for good. Better returns for the average guy means more investment in their kids, savings to allow for the bad times, more money in the economy and less money accruing in the hands of a few very rich people. Shielding the average person from products that can provide those returns is not a good thing, for any of us. It creates a middle man culture of ‘advisers’ and ‘managers’ all taking fees in the name of reducing risk and we have seen before where that ends up.  However, reducing risk is also paramount to retaining these gains… so what is the solution?

For me, it is always the case that the solution is within the problem. Liquidity is the problem, therefore we should make liquidity the solution.

At ASMX we are building a platform that authorised P2P platforms can use to create their own efficient and fast secondary market. Our goal is to connect the elements that make up a market; loan originators, lenders, traders and brokers so that the liquidity issue in the private debt market is addressed by a modern tech solution.

This will lead to an environment where yes, you may not be able to sell the asset backing a loan today, but you may be able to sell the loan that it is securing to someone who is less time-sensitive, rather than selling the underlying asset on a ‘fire sale’ basis to satisfy the cash requirements of the underlying lenders.

If we are serious about protecting investors, we should not be restricting access (which I fear is the trajectory), we should be building tools that open the market more, but that solve its inherent issues. We need to give lenders more choice, better options and yes liquidity. If you share this goal for your customers, we would be happy to chat with you about integrating ASMX with your platform.



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