Opinion Alternative Lending

A call for more considered critiques of P2P lending

There’s plenty to criticise in peer-to-peer lending. Between RateSetter’s wholesale lending saga and subsequent withdrawal from the Peer-to-Peer Finance Association, Zopa’s heightened loss expectations, and Funding Circle signalling an end to manual investment, industry detractors are hardly short of fuel for their fires. And each of the above incidents – which relate only to the very biggest platforms – have come within the past week!

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And yet we continue to endure spurious headlines that seem to be born of a broad desire to bash P2P, on the basis of seemingly anything. A few weeks ago The Times was good enough to alert us of an imminent regulatory “crackdown” in peer-to-peer lending – news that was first reported in December of last year. The article stated that the regulator is “ready to demand that platforms such as Funding Circle and RateSetter provide more detailed information on the past performance of loans”. But it failed to make any mention whatsoever of the prevailing state of transparency within the P2P industry.

It almost felt as though the hand of some banking lobbyist was at play; the article hinged on the word of an unnamed source who was said to be close to the regulator.

Anyway. The latest episode of this kind comes courtesy of The Financial Times, which reported on Monday that peer-to-peer lending websites are “struggling to attract UK customers who want to borrow money”.

It is generally accepted that sourcing borrowers is more of a challenge for P2P lenders than sourcing money to lend. Take Zopa, for instance. Since late last year the platform has been so overwhelmed by investor demand that it has had to introduce a queuing mechanism, forcing investors to wait in line for borrowers to lend to.

So The Financial Times might well be onto something. However, as far as I can see, the article in question hinges on a pair of recent surveys. To quote the article:

“Just 7 per cent of 1,100 people said they had used this sort of service to borrow in 2017, according to a survey by consultancy EY. Separate research from Blumberg Capital, a venture capital group, reported only 4 per cent of 1,050 British adults had used alternative lending services in the past 12 months.”

Instinctively, 7 or even 4 per cent of a randomly selected segment of the population doesn’t seem like bad going to me, remembering always that peer-to-peer lending remains a nascent industry. But herein lies the problem: my gut feel says it’s not bad going, the article’s author thinks it constitutes “struggles”, and there’s no context to say who is closer to the truth. What percentage of the population would have said they had taken out a bank loan in 2017? And what is the size of the P2P lending sector, relative to the banking sector?

The Blumberg survey found that 43 per cent of respondents were concerned about being defrauded, which The Financial Times article references as one factor that might be curbing borrowers’ appetite for alternative lending services. This is a fair point, as trust certainly remains an issue for P2P and alternative lenders alike.

The article also points out that Hargreaves Lansdown shelved plans to launch a peer-to-peer lending service earlier this year. Hargreaves explained that the “market size remains relatively small compared to the other exciting opportunities we have in front of us”. The fund management platform will instead be focusing on rolling out a new “marketplace” savings proposition.

The Financial Times further notes that some of the “steam has gone” from fintech, because fintech firms attracted just $12bn of investment in the first half of 2017, compared to $20bn in the same period last year.

But neither of these two points (on Hargreaves or equity investment figures) bear much relevance to the ability of peer-to-peer lenders to attract borrowers.

The article says that UK fintech companies have made £11.8bn of loans to date, citing AltFi Data. Below is the table that was sent to The Financial Times by AltFi Data to assist with the article.

Annual TotalsGBP millions Origination Volume  Region 2005                                      1.5 UK 2006                                      6.7 UK 2007                                      9.2 UK 2008                                    12.7 UK 2009                                    33.1 UK 2010                                    52.8 UK 2011                                    94.4 UK 2012                                 216.4 UK 2013                                 650.0 UK 2014                              1,578.6 UK 2015                              2,769.9 UK 2016                              3,853.6 UK 2017*                              3,217.1 UK *2017 figure as at 21 Aug 2017.

This table does not paint a picture of origination struggles; quite the opposite. It paints a straightforward picture of the continued growth of a nascent industry – one which will comfortably lend more in 2017 than in any other year in its history.

There are certainly struggles in P2P, and finding enough borrowers to match with investor demand could well be one of them. But evidently it is not yet enough of a struggle to have constrained the overall growth of the sector. It is not yet enough of a struggle to warrant an article, either. 

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