FINANCE
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The rise and rise of peer-to-peer lending Innovative collaborations and customer focus will drive continued growth in this young industry. Inês Maia looks to the future
Over the last 15 years, peer-to-peer (P2P) The sector has shown a unique willingness lending has enjoyed a meteoric rise. In the wake to embrace regulation. Rather than viewing of the financial crash of the late 2000s, it has regulation as a straitjacket on growth, platforms firmly established itself in the mainstream of have taken a long-term view and recognized financial services. that regulation further legitimizes the industry The concept is a simple one: those looking in the eyes of consumers and investors. With to make a return on an investment lend their that mindset, the industry has also developed money directly to consumers or businesses self-regulating structures. In the UK, not only seeking a loan. It effectively cuts out the is P2P fully regulated by the Financial Conduct middleman, such as a bank, which creates Authority, but platforms have founded the Peera significant efficiency. This translates into to-Peer Finance Association: its members must favourable yields – often of 5-10% – for the adhere to a strict set of operating principles. investor, and competitive loan rates for the borrower. The platform simply acts as a facilitator Are challengers replacing traditional finance in the transaction. providers? In 2018, the sector’s total lending volume Investment and high-street banks have been topped £6 billion in the UK alone, a growth around for centuries and are clearly still the of 20% on the year before. More than £16 dominant force among financial services billion in loans has been facilitated by P2P providers. But challengers have made significant platforms in the UK, and strides in closing the gap. every indicator suggests They have been more agile Challenger banks, that this is set to continue in capitalizing on market growing exponentially. trends, and faster to fintech companies, and Unsurprisingly, mainstream integrate new technologies. peer-to-peer lenders are banks are starting to sit up The result is that helping shape a marketplace and take notice. But how today’s borrowers can be where the only constant is has this relatively young robustly credit checked, industry enjoyed such rapid approved for a loan, and customer-driven change growth – and what lies in receive their money in an store for the future? instant. Investors are able to lend money with the click of a mouse, from The rise of P2P the comfort of an armchair, without jumping P2P lending in its current form was born in 2005, through bureaucratic hoops. In a world of when the first platform of its kind opened for automation and AI, customers expect simplicity, business in the UK. It was initially something convenience, and expedience, and fintech of a niche product: only in the years after the delivers. financial crash of 2007-2008 did an increasing P2P platforms are also incredibly efficient. number of platforms enter the fray. The credit Although the concept of lenders and borrowers crunch, coupled with the diminished reputation is not dissimilar to the depositors and debtors of banks and other traditional lenders, left a you’d associate with banks, in the former case, vacuum for a more consumer-friendly form of pounds or dollars are matched on a one-tofinance. Thanks to its combination of an efficient one basis, without the middleman absorbing business model, a simple customer journey, a considerable margin. Efficiencies are passed and a high degree of innovation, P2P lending directly to the customer. This approach also has filled the void. It now caters for a range of reduces market risk, as there is zero leverage, lending and investment opportunities, including which is inherent with fractional reserve consumer loans, business loans, invoice finance, banking. Challenger banks, fintech companies, property lending, retail finance, and more. and peer-to-peer lenders are helping to shape Dialogue Q2 2020