A new UK startup is giving P2P lending a go. Competing most directly with Zopa, and RateSetter, London-based Lending Works has opened for business this week, matching those that have savings to grow, with those that need to borrow money.
But its claimed unique selling point is the level of protection it gives to lenders. Whereas existing P2P lenders will dip into reserve funds to repay lenders if borrowers default, Lending Works insures against default and risk, at no extra cost to customers. Or so the pitch goes.
The company has also announced that it raised £3.5 million in funding prior to launch. The lead investor in the round is David Kyte, founder of the Kyte Group in 1985 and before that, one of the founder traders of London exchange, Liffe.
Other investors include Max Ashton, who runs a number of investment companies including Meridian Equity, Alex Rogers, and Keith Saldanha, head of investment marketing at Man Group. So a decent mix of backers from the financial and fintech worlds.
Lending Works says that personal loan borrowers are selected by the company’s team of “highly experienced underwriters” using advanced underwriting techniques and electronic credit scoring. Loan terms and lending periods are both one to five years.
However, it’s the startup’s level of lending protection — ‘Lending Works Shield’ — which it reckons sets it apart from others in the UK. It includes a reserve fund, borrower default insurance and fraud and cyber crime insurance. “For the very first time, people who wish to lend via the peer-to-peer model can do so with Lending Works in the confidence that their money is protected against borrower defaults and fraud”, says Lending Works.
The company is targeting a net return to lenders of approximately 5.1% AER when their money is lent for five years.
As for why Lending Works is entering what already looks like a well-served market, including companies that use a P2P model, it points out that in actual fact peer-to-peer lenders are capturing only 1% of the UK personal loan market, which by some accounts is estimated to be worth £25 billion.