Zopa’s decision to stop accepting capital in December is a poignant example of the challenge of ‘cash drag’, which is a problem for investors who are looking to maximise their returns across their direct lending investments.

Cash drag is a term used by frustrated investors to describe the negative effects on their returns of sitting on cash while waiting to find an investment opportunity. As the peer-to-peer (P2P) lending market matures, the ability to continue to match funds to creditworthy investments is one of the industry’s biggest issues.

This is the view of Stephen Findlay CEO of BondMason, the leading direct lending platform exclusively for investors which sources and filters the best lending opportunities from across the UK direct lending and P2P market. 

The peer-to-peer market allows investors to lend directly to businesses and individuals, and to earn interest income on their investments. This has opened up a whole new world to make money work harder. 

In P2P lending, cash drag occurs frequently, as there is often a timing gap between the point when a lender deposits funds and the point at which a loan is originated and matched against those funds.

This week, Zopa – one of the UK’s longest-standing and leading P2P lending operators – announced that it would stop accepting new funds for a period, sparking comment in the Financial Times and The Telegraph. The move enables it to rebalance investor capital more efficiently in light of the slower rate of new loans coming onto their platform. This was aimed at reducing cash drag for new and existing clients, and to protect loan quality.

Stephen Findlay admires Zopa’s decision to take a pause in accepting new capital, as this represents good practice in terms of responsible loan origination. Rather than accept more client capital and lower lending standards to “get more money out of the door”, they have taken the harder decision, and decided to take a breather in accepting deposits whilst their book is rebalanced. This move is exactly what the industry needs to see more of as it matures, with responsible players taking the lead in setting the standard.  

At BondMason, the team take the legwork out of deploying capital in P2P lending opportunities by accessing the best loans from an approved set of P2P platforms from across the direct lending market. This makes it easier for investors to access the returns they are after. As part of this, BondMason also aim to minimise cash drag, enabling clients’ to be fully allocated across 50-100+ loan investments, but this can still take up to 28 days. This may seem a slow start, but it’s paramount to balancing loan quality with investment speed.  Caution should always be taken over deploying capital too quickly.

Some critics of P2P lending have identified a lack-of-alignment between lenders and the P2P platforms as a key area of risk. Stephen Findlay says;

“Zopa’s decision to stop accepting deposits is a strong indicator that they are looking after the needs of their lenders. As P2P lending grows and competition increases, we would like to see other platforms take a similar approach. This could only be a good thing for the P2P lending industry and the lending community as a whole.”


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