Dont panic, but we’re in the middle of a peer-to-peer lending crunch

By Daniel Lanyon on 2nd June 2019

P2P/Marketplace Lending

Lendy recently joined the ranks of a number of platforms that have collapsed. Could it be the harbinger of a P2P shake-out?

Dont panic, but we’re in the middle of a peer-to-peer lending crunch
Image source: Photo by Startup Stock Photos from Pexels

Many, not just those with an overly critical lens, have expected a ‘consolidation’ in the UK peer-to-peer lending market for some time and it is starting to look like it may well have just arrived. They have been wrong for many years but recent developments do seem to suggest a heightened period for non-bank lending platforms connecting borrowers and investors.

Lendy, a fast-growing property-focused P2P platform, and sponsor of Cowes Week, recently formally entered administration after being on an FCA watchlist for the past six months. Lendy was the last platform to be authorised by the FCA back in 2018 but recently entered into a situation where its loan book looked nothing short of dreadful with nearly £100m of loans currently in default. 

Importantly, most platforms are not like this and have grown at impressive speeds without sacrificing quality and will continue to scale.

Clearly, also, while many platforms have reached a mature phase of growth, something bigger does seem to be going on in the industry than just Lendy.

GLI Finance revealed last week that it also expected one of its platforms, which it did not name, will likely close. Bond Mason, also again last week, said that it would pull out of its core P2P lending business. UK BondNetwork was another lending platform that shut up shop this year, as exclusively revealed by AltFi. They appear to be dropping like flies as the old saying goes.

The FCA, is imminently expected to reveal its findings from a study into potential new marketing restrictions for retail investors, which some have dubbed ‘a crackdown’. It may well feel under greater pressure as a result of Lendy going into administration, to show it is on the front foot when it comes to regulation and the protection of retail money.

Ian Niblock, CEO of Orca Money says it is no surprise that Lendy has been placed into administration owing to an “extremely poor loan book performance” and troubles with the regulator that have left investors nervous for some time.

Nonetheless, he adds, this is an acute period of the P2P lending industry.

“This does not come at a good time for the industry as we await the results of the FCA consultation where marketing restrictions on the sector are proposed,” Niblock said.

The key question is whether other P2P lending firms could follow Lendy? Demand for loan assets is clearly rising as shown by Brismo’s findings with 20 per cent year on year growth in volumes last year. But, critics will point to the above series of issues as proof of a flaw in the overall model which could turn many investors off, both institutional and retail, just as things are starting to mature.

A ‘shake out’ can, of course, be a good thing for any industry, particularly one that has grown very quickly from humble origins but P2P lending is at a crucial stage towards more mainstream adoption by investors and the proposed FCA ‘crackdown’ in marketing restrictions is a likely setback.

We could yet see “the ‘peer’ being removed from ‘peer-to-peer’,” as Orca Money’s Ian Niblock puts it.

 

Comments

David

13 Jun 2019 08:25am

I find it a little bizarre that Mr Niblock says that it was 'no surprise' of the troubles at Lendy however their 'extremely poor loan book performance' did not stop Orca having affiliates links to Lendy (and as of writing still do). All that is easy to say when you don't originate loans yourself and just aggregate.

Dave Stewart

05 Jun 2019 12:40pm

Interesting that Lendy was on the FCAs "watchlist" for the previous 6 months. I had been withdrawing small sums for the last year as more than 37% of my loans had defaulted. Lendy simply refused to answer my questions about failures. The question is, why cant lenders see this "watchlist". In my view the FCA appears to be a waste of space viz London Capital and Finance debacle

Casey

03 Jun 2019 09:28am

Consolidation is a natural part of the maturity process. Rather than being a turn off, this is very much a positive. There are plenty of equity platforms and funds that pop up, underperform and ultimately exit the market but most analysts don't see that as an indictment on general equities or funds models.

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