Is the recent sharp growth in peer-to-peer lender platforms sustainable, and can they really become an alternative to bank loans, which remain the finance option of choice for the majority of businesses?

These are the questions probed by journalist Chris Wright in a new article for financial news outlet GlobalCapital. Overall, the conclusions he reaches are promising.

Wright cites a recent survey by Allen & Overy showing that 48% of funding at medium-to-large non-financial Western European corporates was bank lending, 22% was capital markets – and an astonishing 30% was alternative finance, a figure unimaginable several years ago.

Nearly half of the corporates surveyed (48%) expect their use of alternative finance options such as p2p platforms to increase at a faster rate than any other market segment over the next five years, while well over half the investors polled (57%) say they expect to expand their provision to peer-to-peer lenders and other models in the alternative finance sector.

The big milestone in the seemingly inexorable rise of peer-to-peer lender platforms remains, for most analysts, the financial crisis. Just after the downturn, 92% of UK lending came from the top five banks, all of which were competing frantically for balance sheet. As a result, for individual consumers and SMEs, the provision of credit was all but withdrawn.

Given that SMEs are the backbone of the UK economy, contributing 60% of GDP, this was bad news for the prospects of economic recovery.  Banks, with their huge origination costs and multitudes of advisers and branches, simply found that they couldn’t make funding for the “smaller fry” of the business world profitable. They migrated to larger, £2million-plus loans because they hoped they would bring in higher-fee ancillary services.

The increasingly global peer-to-peer lender industry hasn’t been slow to respond to this lending gap. Research group Massolution forecast last July that the global crowdfunding and p2p industry would raise $34.4bn (£24.4 bn) in 2015 – more than twice the amount it raised the previous year, which in turn was well over double the amount it raised in 2013.

Innovative solutions have, in the UK, gone hand-in-hand with scrupulous efforts by peer-to-peer lenders to demonstrate high standards of financial responsibility (the FCA is widely regarded as providing the best regulatory framework for the new platforms in the world). Now, banks are taking an increasingly pragmatic stance toward these upstart start-ups, referring a business that is unprofitable for them on to peer-to-peer alternatives. This avoids leaving the nasty taste in the mouths of SME applicants that a blunt turn-down always deposits. Banks get to keep their customers, and p2p lenders get the lending business in a form of win-win solution.

Peer-to-peer lending is growing, and it looks like it’s here to stay.

P2P News
8 Jan 2016
Unbolted Team info@unbolted.com