Transparency – great for sanctity, but sometimes bad for business
Transparency of information is one of the guiding principles behind the P2P sector and an undoubted contributor to its success. Not all business models are the same (nor should they be), but, in ArchOver’s case, the all of the investors across our platform know exactly who they have lent to, the business the borrower is in, what the money will be used for and the rate of return they can expect. Conversely, borrowers understand precisely what they are signing up to, including the rate of interest they will be paying on their loan together with any other charges that may be applicable. All up front with no nasty surprises down the track. Sounds perfect, doesn’t it?
The reality is that this all works fine until something goes wrong – when the information that was so freely given at the outset becomes a handicap rather than an advantage. At this stage, it is vital to be able to distinguish between fact and rumour and, more importantly, between constructive comment, tittle-tattle and plain mischief.
Internet-based investor forums have suddenly become downright dangerous, particularly where platform operators trying to recover investors’ money when a loan has turned bad find their efforts compromised by misguided comments from people who don’t know the facts, but who feel compelled to make damaging assertions. The net result is that a borrower who may have been struggling due to a temporary situation becomes a terminal case because, on seeing all the speculation, other creditors panic and withdraw their support. And because of the nature of the internet, the damage can be both instantaneous and irreversible. Result: everyone loses.
What really counts is how you deal with tricky financial situations on behalf of investors and the quality of the systems that are in place to cover this eventuality. As an industry, we probably still have some way to go – maybe perfection will always be beyond us – but the question remains as to the value of transparency and the uncontrolled exchange of commercially sensitive information via the internet. Some have suggested that lawyers should be brought in to jump on investors whose conduct is technically in breach of contract. Others argue that platforms should restrict the amount of information they give to investors and only make contact when there is something useful to say rather than act in response to rumours. I have some sympathy with that stance.
We can all strive for perfection, but the undeniable truth is that there will always be a proportion of loans that go bad – that’s as true for banks as it is for those of us operating in the P2P industry. We have a clear responsibility to protect the interests of investors and to communicate regularly and accurately. However, rushing out a statement to satisfy speculators helps no one.