Why Funding Circle is shifting its lending model

Funding Circle, a major UK-based P2P small business lender, announced that it plans to shift its loan model from being auction-based to relying on fixed interest rates, according to a letter to investors. The move was made in an attempt to widen Funding Circles business and increase efficiency.The change is a big shift for Funding Circle and a departure from tradition for alternative P2P lenders. Previously, investors had the opportunity to select loans to bid on over the course of 7-14 days. Ultimately, the lowest interest rate would win out and the business could accept or decline the loan. Now, lenders will be presented with fixed interest rates based on borrower risk and can choose which companies to invest in on a first-come, first-serve basis.Funding Circle believes this will improve its operations in several ways:Simplicity: Previously, investors felt their money was tied up in weeklong auctions, which led investors to bid on fewer loans and ultimately invest less money. Funding Circle believes the shift will make its operations more efficient, which will in turn lead to more loans processed overall.Certainty: Borrowers would withdraw applications on a regular basis because of the long period of uncertainty regarding the final interest rate during the auction. Now, both borrowers and lenders will have a more clear sense of what theyre getting. This certainty, according to Funding Circle, will attract a larger and more diverse set of businesses to apply for Funding Circle loans.Finding this article interesting' Thousands of professionals just like you had it in their inbox first. Stay ahead of the curve and gain a comprehensive understanding of the latest news & trends, start your day with the PaymentsINSIDER. Get two weeks risk-freeAlternative lending continues to rise in the UK. The Peer-to-Peer Finance Association, representing the biggest lenders in the UK, processed a record $789 million in loans in Q2 2015, up 63% year-over-year (YoY). Funding Circle has cumulatively lent $1.1 billion in the UKthe second-highest total after P2P lending pioneer Zopa.Here are other stories you need to know from today's PaymentsINSIDER:Interchange fees cut for certain Chase transactionsSafari com releases M-Pesa APIAndroid Pay rumors aboundDon't miss another day of breaking developments. Stay ahead of the curve and gain insight into the latest news & trends. Join thousands of other professionals who start the day with PaymentsINSIDER. Try any of our INSIDER newsletters for two weeksJoin the conversation about this story
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