Customer acquisition: The new rules of attraction
How is the industry attracting customers while complying with new financial promotion rules? Kathryn Gaw reports…
The introduction of new financial promotion regulations has had an immediate impact on the UK’s peer-to-peer lending sector.
Any investment platform which has been classified as ‘high risk’ by the Financial Conduct Authority (FCA) is now limited in how they market their products. These limitations have extended to P2P lending platforms, which the FCA considers to be ‘high risk’ due to the risk of capital loss.
Read more: Revealed: Secret talks underway to roll back financial promotion rules
The rules required P2P lenders to implement a package of measures to “strengthen the consumer journey”. These included strengthening the existing risk warnings on their websites to ensure that investors are aware of the risk of capital losses. Platforms have also been banned from using any “inducements to invest” such as cashback deals or refer-a-friend offers. They have been required to improve the categorisation of their clients, to ensure that only sophisticated or high-net-worth individuals are investing in their products. And they have been told to make their existing appropriateness tests even tougher, so that only educated investors are using these services. The regulator also introduced a 24-hour cooling off period for new investors, during which time platforms are not allowed to advertise their products to them directly.
The risk warnings came into effect last December, and all other rules came into effect on 1 February this year.
Read more: Regulation special report: Status: It’s complicated
As a result, some platforms have stopped advertising their products completely in order to ensure compliance with the FCA; while others have opted to focus less on the retail investor market, in favour of institutional investors. ArchOver cited over-regulation as one of the key reasons behind its exit from the P2P market in January, and there have been rumours that at least one other platform intends to shut its retail business in response to the marketing rules.
Meanwhile, P2P sector representatives have been campaigning the FCA and the Treasury to roll back some of the strictest requirements, such as the 24-hour cooling off period.
According to the FCA, these new rules were designed to protect vulnerable consumers from making unsuitable investments. However, P2P experts believe that the regulations go too far, and are actually making it near-impossible for platforms to acquire new investors. Some have even argued that the financial promotion rules are negatively impacting consumers, by effectively reducing the choice in the marketplace for people who might otherwise invest in high-risk stocks and shares, or unregulated investments such as cryptocurrencies.
Since the regulations were introduced, platforms have been forced to think outside the box when it comes to the marketing of their products. Rather than advertising cashback deals, some platforms are increasingly relying on broker networks, word-of-mouth recommendations and transfers-in from other platforms; while others are improving their investor education services.
We asked a few P2P platform heads what they are have been doing to attract new customers in the wake of the financial promotion regulations. Here is what they said…
Filip Karadaghi, managing director of LandlordInvest
“We acquire investors who are coming from other platforms and we do our usual marketing activities with relevant risk warnings.”
Karteek Patel, chief executive and co-founder of Crowdstacker
“We’ve been focusing on educating and informing investors.
“We’ve always maintained that P2P lending should be part of a diverse portfolio of investments, so we’ve been leading on the much larger range we’ve been able to offer over the last 12-18 months.
“Plus, we have been helping would-be investors get to grips with key basic concepts about investing in property, such as loan to gross development value, and the process of lending property funding.”
Brian Bartaby, chief executive and founder of Proplend
“[Customer acquisition is] less of an issue for Proplend as we don’t actually advertise anywhere and haven’t for many years!”
Alan Fletcher, partnership director at Invest & Fund
“Invest & Fund’s clients from both sides of the business tend to come in via our network of relationships in both the property and intermediary financial world.
“We are lucky enough to have one of the best origination teams in the business made up of seasoned professionals from within the banking and finance industry; that’s our secret weapon!
“For that reason, we have always been quite conservative regarding direct financial promotion, so we have successfully adapted to the financial promotion rules without any seismic shift in how we operate.”
Paul Auger, chief operating officer at Kuflink
“We had to re-look at our marketing strategy following the rule changes. We have amended all our marketing to ensure it complies with the new rules as well as looking at new mediums and channels, to educate the public on what marketplace lending is.”
Atuksha Poonwassie, managing director and co-founder of Simple Crowdfunding
“The changes in the financial promotion rules have impacted how Simple Crowdfunding and other platforms are currently marketing. That said, a lot of Simple Crowdfunding’s business is through word of mouth or people finding us when searching online. We are also still active through our social channels.”
Lee Birkett, chief executive and founder of JustUs
“Most of our clients come to us from personal referrals and professional high-net-worth advisers.”
Uma Rajah, co-founder and chief executive of prime property lender CapitalRise
“The recent financial promotion rules that came into effect in the last six months have not had a material impact on our customer acquisition strategy or results. We continue to see strong demand from investors, for example a 128 per cent increase in settled investments in the last 30 days versus the same time period in the previous year.
“CapitalRise has expanded its marketing and investor relations teams in line with the wider growth in the business, as well as drawing on its strong reputation in the market to see record levels of new business.”
Louis Schwartz, chief executive of Loanpad
“We mostly acquire new investors organically and via word-of-mouth. We also do a small amount of marketing to raise awareness and this is something we may look to increase shortly. We do not offer any new or existing investor promotions however as these have been prohibited by the FCA.”