1 in 4 could consider P2P lending in 2014

June 5th, 2013
ReBuildingSociety

ReBuildingSociety has comissioned some consumer research regarding the future size of the peer-to-peer lending market.  They state that 17% of consumers are already considering investing in P2P lending schemes over the next 12 months, and this could rise to 26% in 2014 when the sector becomes regulated.

This also states that the biggest obstacle is low levels of awareness with 59% of consumers not knowing what P2P lending entailed.

Here is the full statement on ReBuildingSociety's blog.

One in four consider P2P schemes post-2014 FCA regulation

rebuildingsociety.com recently commissioned some consumer research to gauge the potential size of the peer-to-peer lending market. The findings supported our view that the market will grow exponentially post-regulation and below is the press release issued yesterday.

  • 17% already considering investing in P2P lending schemes
  • 768,000 SMEs would consider applying for a loan through P2P lending
  • Lack of awareness biggest obstacle to P2P growth

One in four (26%) people in the UK (or up to 12 million) would consider loaning money to UK SMEs by joining a peer-to-peer lending scheme (“P2P”) in 2014 when the sector will be fully regulated by the Financial Conduct Authority (“FCA”). This is according to a new study by rebuildingsociety, a peer-to-business lending website that connects SME borrowers with lenders looking for better returns than those offered by savings accounts.

rebuildingsociety’s research also shows that 17% (or up to eight million people) would currently consider P2P lending over the next 12 months, without the need for additional regulatory protection. However, the added security should reinforce the sector given money lent through P2P is currently not covered by the Financial Services Compensation Scheme (“FSCS”) and lenders could lose cash if borrowers default.

Peer-to-peer lending – also known as person-to-person lending, peer-to-peer investing and social lending – is the practice of lending money to businesses or individuals online. The sector is set to boom with as much as £12bn2 to be lent through SME P2P schemes annually, roughly a tenth3 of total mainstream SME bank lending in 2012.

The new study also underlines the attraction of P2P schemes to small firms as around 24% (or 1.2 million4) believe they will struggle to access finance in the next 12 months. Given this, 16% of small businesses would consider applying for a P2P loan over the next year.

The study suggests the biggest obstacle to the growth of P2P lending is low awareness with six in ten (59%) consumers not understanding what the term meant. Furthermore, more than half (54%) highlighted a lack of knowledge as the principal reason as to why they wouldn’t invest in a P2P scheme, followed by the fear of borrowers not repaying the loan (46%).

Individual lenders can typically earn between 8% and 15% interest through P2P platforms such as rebuildingsociety, which is significantly higher than the sub-inflation5 returns offered by many bank and building society accounts. Basic rate taxpayers (20%) currently need to earn 3% on savings and higher rate taxpayers 3.99% to keep track with inflation.

Daniel Rajkumar, Managing Director at rebuildingsociety.com said: “This research shows P2P lending is well on its way to entering the financial mainstream with strong levels of interest from consumers and SMEs alike. The FCA’s regulatory oversight from next year will provide consumers with an additional layer of protection and our study shows this is very likely to boost take-up.”

rebuildingsociety.com has been operating since September 2012 alongside Funding Circle and thincats.com in the peer-to-business lending industry. It was founded after Daniel Rajkumar experienced frustration with his bank in terms of funding his other business interest, Web Translations Ltd, and took a P2P loan.

Daniel Rajkumar continued: “The evolution of this market will continue to generate value for borrowers and lenders beyond the financial transaction. It can be viewed as a marketing activity and businesses who borrow through P2P lending have effectively won a crowd of stakeholders with an interest in the success of those businesses. This is more powerful than institutional finance and both parties are slowly adjusting to this mindset.

“Clearly not all individuals and small businesses who are considering using a P2P lender will end up doing so but as long as borrowing and saving conditions remain depressed, demand will rise.”

Notes

1 Research conducted online between 10 – 17th May 2013 among a representative sample of over 2,042 UK adults and 356 UK SMEs

2 Nesta report – Banking on Each Other

3 BBA data – Banks’ support for SMEs – Q4 2012

4 Federation of Small Businesses

5 CPI inflation rate of 2.4%, as at 21 May 2013

RateSetter's provision fund tops £1million

June 5th, 2013
RateSetter

RateSetter, the UK's second largest peer-to-peer company specializing in personal loans, has announced this week that its provision fund - the pot of money that will repay lenders if their borrower defaults - has passed the £1million mark.

With RateSetter's £47million on loan and a current lifetime bad debt rate of only 0.36%, the provision fund would cover future bad debt 6 times over.  If bad debt were to rise to RateSetter's estimate of 1.4% the provision fund would still reimburse lenders with a significant amount of money to spare.  RateSetter have been very transparent with the data concerning their provision fund, and have the motto "Every Lender, Every Penny" as, to-date, no lender has suffered any loss to their capital.

Zopa, the UK's largest peer-to-peer company recently announced their SafeGuard product, which works in a very similar way to RateSetter's provision fund.  It is also expected that some new entrants will offer similar products.

Zopa loans at 4.9% APR

May 17th, 2013
Zopa

Zopa, the leading peer-to-peer company in the UK, have loans of £8000 over 36 months at a record low of 4.9% APR for an A* borrower.  Loans of between £8000 and £10,000 have an APR of less than 5.0%.  This is a market leading rate and should attract a number of borrowers.

A busy year in P2P lending

May 15th, 2013

The year 2013 is proving to be a monumental year for peer-to-peer lending having passed the £500million mark of loans arranged, with lots of new companies launching or looking to launch within this space.  Are these companies simply jumping on the bandwagon or are they bringing anything new ?

The UK peer-to-peer market is growing in excess of 100% per annum and this is increasing, so it is inevitable that this will attract a lot of attention from new businesses.  I believe that only a few companies have simply jumped on the bandwagon as most are offering something new, or targeting a niche market.  It is encouraging that companies are not afraid to try something new, and while not all of these will be successful, this is a good example of Darwinian evolution in a commercial context.  It is likely in ten years time that most P2P companies will operate a similar business model, or operate in a specialist sector.

There are already certain aspects that new companies are offering by default, such as the provision fund pioneered by RateSetter, guarantees pioneered by Funding Circle, or secured lending pioneered by ThinCats.  Zopa, the company that started peer-to-peer lending in 2005 has over the years offered a variety of lending models, but the one that is still used, and used elsewhere within the industry is the market model where multiple lenders are automatically matched to a single borrower.

In the UK the top 4 peer-to-peer companies (by outstanding loans) have over 95% of the this market (these comprise Zopa, Funding Circle, RateSetter and ThinCats).  New companies are taking some market share, but these companies have to offer something to attract lenders and borrowers.  A company with lots of potential lenders and no borrowers will be as equally unsuccessful as a company with no lenders and lots of potential borrowers, so marketing has to target these types individually.

New lenders would be attracted by a higher reward to risk ratio, lower fees and whereas new borrowers would be attracted by lower interest and lower fees.  Peer-to-peer lending already has market leading rates for borrowers, but not every borrower will pass the high bar for credit checks.  If P2P companies relax the requirements for borrowers it can have a severe negative impact on bad debt rates months or years down the line, and several companies have experienced this with disastrous consequences for lenders and the companies themselves.

The P2P money website is unique as it is the only site to publish comparable rates between companies and bad debts, so lenders and borrowers can choose the best company for them.  The one bit of advise I can offer is that all new companies should be as open and honest as possible about bad debt estimates, lates (loans that are currently late), and defaults, as they will live or die by these statistics.

Funding Circle and RateSetter win awards

May 10th, 2013
Funding Circle

Funding Circle and RateSetter, two of the leading P2P companies in the UK, were winners in the CreditToday awards.

Funding Circle won the Alternative Lender of the Year (Commercial) and RateSetter the Alternative Lender of the Year (Consumer).  This is further recognition that peer-to-peer lending is having a major impact in the finance, and is a driving force for better rates for both borrowers and lenders.

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