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An update on the Peer to Peer marketplace

Posted 3 years ago

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The big news earlier this week was released on 31 July by RateSetter. The Peer-to-Peer (P2P) lending site announced that it has issued more than £2 billion of loans to businesses and individuals via its platform. Founded in 2010 it is also significant that more than £1 billion of this total was lent in the last 19 months (since the start of 2016).

The majority of this money (£1.3 billion) was lent to individuals, with the rest (£700 million) lent to businesses.

This news came on the heels of an announcement by the Regulator the Financial Conduct Authority (FCA) that it was proposing to widen the scope of affordability assessments for peer-to-peer platforms as part of a review of the credit sector. The FCA believes there is a ‘gap’ in the regulatory regime for P2P when a borrower asks for more credit or when a business acts as a lender rather than an individual. 

As we mentioned last week, both the FCA and the Bank of England have issued statements seeking to curb lending activity recently. Both are concerned that unsecured debt is an issue. This is likely to have an impact on P2P lending, although it may not curb growth. The sector has a long way to go before it represents a significant competitor to the Banks in the UK and regulations already call for improved transparency, capital adequacy requirements and default disclosures. But it may mean that default rates increase, the number of unsecured loans (although there are very few of these in the business P2P lending sector) reduces and it could provide a catalyst for merger or acquisition activity within the sector.

Which means investors would do well to keep a weather eye not only on the estimated annual income rates that P2P business lending offers them, but also default rates. As you will see from our comparison table some UK platforms still don’t disclose these, others have a non/applicable default rate because they use insurance to mitigate that risk. It is beneficial to understand how defaults are dealt with before investing.

Businesses seeking loans from P2P platforms and alternative lenders need to up their game too. The platforms, just like the banks, expect to see accounts, want honest answers to questions (CCJs for instance) and will seek security for large loans against personal or corporate assets. Have this information to hand before applying and expect to have to answer questions. The platforms expect to deal with more businesses looking for loans as awareness of this valid alternative to Banks grows, but whilst they can often offer more attractive rates and terms than the Banks it doesn’t make them any less vigilant.

Tagged: alternative finance peer to peer lending p2p lending Ratesetter improve transparency default rates

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