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Large P2P lending platforms see increased competition from smaller firms

Mid-sized platforms are increasingly challenging larger firms as competition heats up.

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Mid-sized p2p/direct lending platforms in the UK have increased their market share to its highest ever level, according to BondMason’s Direct Lending Report 2018.

BondMason’s data show between 2016-2017, mid-sized platforms increased their potential to compete, growing their market share by approximately 50 per cent to £1.6bn. Large platforms, meanwhile, grew their share by only approximately 6 per cent.

This increased competition, teamed with overall market growth, is symptomatic of a ‘flight to quality’ BondMason’s CEO Stephen Findlay says. Within P2P/direct lending nearly 80 per cent of platforms now offer a recognised credit risk team, while underperforming platforms continue to exit the market, the report found.

"We’ve really started to see an up-tick in platforms’ governance standards, and some of the weaker platforms struggle with their loan books,” Findlay said.

“Our concern a year ago was that many platforms didn’t have sufficient credit risk teams or experienced investment professionals in place.”

The wealth manager and IFA industry, meanwhile, continues to view the market cautiously, he adds.

“A survey featured in our report shows that the majority of advisers can see the benefits of Direct Lending. In fact, there is a lot of potential for advisers to grow the market further as it is still very small in the context of overall lending,” said Findlay.

“However, many advisers are reluctant to embrace a new investment product. Years of scandals around unsuitable investments have left advisers battle weary. We’ve already seen a number of compensation claims just in 2018 from the FSCS around non-standard investments; and appreciate the need for advisers to remain cautious.”

BondMason also anticipates increasing collaborations between traditional lenders and the p2p/ direct lending industry.

“2017 saw partnerships between Metro Bank and Zopa,RBS and Funding Circle, and Santander and Kabbage, and this trend is expected to continue, and accelerate, throughout 2018 and 2019. Consolidation between Direct Lending platforms will occur later down the line,” it said in a release alongside the report.

Banks, it continues, are likely to continue to deploy capital through direct lending platforms, but also start using direct lending as a source of capital.

“There is still so much potential for the direct lending market – potential which the banks and large institutions are increasingly recognising. We believe the range of investors and the methods of investing will diversify in the coming year and competition and consolidation will continue to produce better products, which will improve regulation standards, Findlay said.

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