Trends in UK Consumer P2P Lending

Trends in UK Consumer P2P Lending

Simon Champ of P2P Capital Solutions, one of the first firms to invest in P2P businesses, interviews some of the establish and emerging leaders in the P2P online lending industry: Giles Andrews, of Zopa; Peter Behrens, of RateSetter; and Nicholas Harding, of Lending Works.

Institutional Capital
• Institutional capital will allow the market to scale, but the quality of institutional investors is of critical importance. Lending Works is actively pursuing institutional lending opportunities to help with scale.
• With regard to institutional capital, co-existence is key. Behrens of RateSetter says the holy grail is that institutions invest by pressing the same button the consumer is pressing.
• According to Zopa, in the US, institutions were short-term providers of capital due to regulations, but over time we will see them migrate to longer term sources of capital. This will allow platforms to continue to build for the future.

Insurance to the lender
• All three platforms offer insurance to the lender.
• Harding of Lending Works said that when starting the business, Lending Works focused on protecting lenders, and on great returns. “We ensured against some of the risks that lenders are faced with: accident sickness and death, unemployment, fraud, and cybercrime. We offer a reserve fund that mops up missed payments.”

P2P lending – appropriate for low and high risk investors?
• According to Behrens of RateSetter, definitely. “It’s about providing a very easy simplified approach.”
• Andrews of Zopa confirms: P2P lending is low risk, thus very appropriate for ISAs.

How important is partnering?
RateSetter: These platforms are about efficiency. They are about repeatability, rather than bespoke things.
Lending Works: 2014 was about proof of concept, which we have done successfully. 2015 will be the year of partnerships. It will be about taking our core product and repeating that with partners.

Leverage – Will RateSetter deal with leverage:
RateSetter answers positively, stating they are becoming more respected by the older players. Lending Works believes the company will securitize once they get some institutional lenders.

Predictions for next year:
• Behrens of RateSetter foresees greater involvement from banks.
• Harding of Lending Works agrees, adding he expects to see big brands across UK partner with P2P.
Zopa predicts greater diversity of platforms and that some platforms will begin to fail.