The UK P2P Business Lending Market – is it the Leading Edge or the Bleeding Edge of fintech?
Dramatic growth over the last few years in the UK P2P business lending/invoice trading markets - up from £300m in 2013 to £3bn in 2015, has led some to question whether this is a sector heading for disaster, or the new way forward in UK financial services – is it leading or bleeding edge?
Investors need to be aware that lending directly to UK businesses will, in some cases, lead to partial or total loss, when a company cannot fulfill the terms of the loan over the repayment period. Also, investments in this sector do not qualify under the FSCS criteria, but losses can be offset against gains for tax purposes.
Mitigating against this risk is the fact that investors can access externally verified information prior to committing their investment funds, and can choose to spread their funds across many loans, rather than risking everything on a single loan. Most business loans are also linked to some form of security offered by the borrowing company. As in all investment decision making, careful consideration of all the risks involved prior to action has to be the watchword.
Increasing regulation of the sector should also bring better risk control, since platforms must have robust and documented compliance policies and procedures in place, before qualifying for full FCA authorisation.
Government support, and increasing participation in lending across platforms by institutional investors over the last 2 years, also suggests the "professionals" are convinced that this is a sector worthy of active involvement. The fact that P2P investments can now be packaged into Innovative Finance ISA schemes linked to fully authorised platforms, also indicates the growing acceptance that this sector is becoming part of the mainstream savings environment.
The UK market has now existed for over 10 years, and whilst still relatively immature, it is interesting to note that industry statistics show low overall losses, despite a cumulative lending total for the UK's peer-to-peer business lending sector of around £3.7 billion, according to the Liberum AltFi Volume Index UK.
On balance, this feels to me a Leading Edge sector that will continue to grow successfully.
Should we, as an industry, be actively countering the nay sayers with more media commentary on the positives offered by our growing sector?
Peer Funding Limited