By Daniel Lanyon on 9th February 2017
BondMason’s latest report finds increasing enthusiasm for P2P from financial intermediaries as well as a ‘flight to quality’.
More than half of wealth managers and other financial intermediaries are now recommending P2P to their clients, according to a new report from BondMason.
The firm says P2P lending is also beginning to see a ‘flight to quality’ as the growth rate of the industry slows and smaller and less successful platforms increasingly exit the market.
BondMason’s Market Report 2017 shows reasonably strong growth meant a total £3.2bn was lent via p2p lenders in 2016, up 39 per cent on 2015, but nonetheless a slower rate of growth for the same time period between 2014 and 2015 where the market nearly doubled – rising 91 per cent.
Stephen Findlay, CEO of BondMason, says this apparent slowdown is the start of a "flight to quality" whereby better lending platforms outperform and evolve faster and more sustainably than weaker ones, forcing the underperforming platforms to start to lose market share and then move out of the market altogether.
“This is good news for lenders, for borrowers and, ultimately, for the market itself.”
Nonetheless, it only accounted for about 3.0 per cent or - £3.2bn out of £100-120bn - of comparable lending in 2016.
“There is plenty of room for direct lending to grow over the long term as it is still very small in the context of the overall lending market. This is exciting news for retail and institutional investors alike: competition is raising platform standards, while the growth potential for the market as a whole means that there remain great opportunities out there for investors,” Findlay added.
The report also said there had been a “migration of retail investors moving into direct lending in the search of a middle ground between high risk and low returns”. Over half of surveyed wealth managers would now recommend direct lending as an alternative to mainstream cash products.
At the same time, institutional investors now account for more than half of the capital flowing into p2p for the first time since the industry was created over a decade ago.
“We predict that direct lending will soon become a pension-grade investment product, as more and more institutional investors take advantage of this growing industry. This makes direct lending a real game-changer for the future of pension provision, in an environment where everyone is searching for a way to make their money work harder for their retirement.”
BondMason’s report also notes that consolidation between direct lending platforms and more mainstream traditional financial players is likely to increase in 2017 as the market moves from an ‘opening’ to ‘scale’ phase. Tie-ups between direct lending platforms themselves will, however, come later as growing infrastructure systems and improved regulation will move the relatively nascent industry to a more established means of lending.
Stephen Findlay said: “There is still so much potential for the direct lending market. We expect to see this “flight to quality” really take off over the next 1-2 years and for increased competition to lead to notable platform failure as it becomes harder for platforms to sustain revenues to cover their cost base.
“Furthermore, the range of investors and the methods of investing will diversify, competition and consolidation will continue to produce better products, and regulation will improve as the industry becomes more established.
“Direct lending is here for the long-haul and we expect it to evolve and change form over the coming years – becoming an ever-increasing component of asset allocations for retail and institutional investors.”
AltFi is returning to Amsterdam for its second annual Summit in the city. The inaugural event last year was a roaring success, with key figures from across Continental Europe's alternative finance and digital banking sectors highlighted. These included Jeroen Broekema, managing director of Funding Circle Netherlands, and Mieke van Engelen, head of innovative partnerships at ABN AMRO's standalone lending platform, New10.