P2P lenders in the consumer and business lending industry have seen incredible growth in the last two years, providing more than $780 million to these borrowers through marketplace lending platforms, according to reports in the Financial Times this week.
The publication described the current market climate as a blossoming one as 114 businesses have applied to operate as a P2P lender in less than a year under rules by the Financial Conduct Authority, the agency that took over regulation of the P2P sector last year. Reports said an additional 178 businesses have interim clearance to operate as a marketplace lender. The figures were obtained by regulatory consultancy firm Bovill, the FT said.
The reports coincided with new research published by BI Intelligence that found that the U.K. yielded $2.3 billion worth of P2P loans last year alone. To put it into perspective, analysts said, it amounts to $35.62 worth of lending per person – 72 percent more than the lending volume seen in the U.S. (which averaged about $20.70 worth of P2P lending per person in 2014).
Figures of such prolific growth suggest that the rate of market expansion is increasing. Earlier statistics released by the Peer to Peer Finance Association found a 32.7 percent increase in the volume of P2P lending between Q1 2014 and Q4 2014. Liberum’s AltFi Volume Index found the P2P lending market has already grown by 116 percent this year compared to last.
Business Insider concluded that a positive regulatory environment combined with consumers’ tendencies to be wary of traditional banks attribute to the U.K.’s success in the area. High use of the mobile device, high Internet penetration, early eCommerce adoption and adoption of faster, innovative payments technologies all make the U.K. an environment in which alternative lending can flourish.
Plus, regulators in the U.K. are more apt to support marketplace lending development.
“Everyone feels it’s a bit of a land grab now there’s more certainty about the regulatory regime,” Bovill head of venture finance Gillian Roche-Saunders told the Financial Times, which said that at the end of last year there were just 56 marketplace lending platforms in operation. “There are an awful lot of new entrants to the market including many niche players,” Roche-Saunders added.
These “niche players” include marketplaces that specialize in invoice financing, for example, or factoring. Plus, many of these new market entrants are looking to provide other financial services to businesses in addition to P2P loans, like fund management.
But both BI Intelligence and Bovill agree that the FCA’s in-progress plans to implement new rules for the market could eventually mark the end of the explosion in market players. According to the FT, the FCA overtook regulation of the P2P market late last year and is looking to implement a “full regulatory regime” by April 2017.
The incoming rules would mean marketplace lenders would be required to hold reserve capital funds of £20,000 (about $31,000) and provide a mechanism to transfer outstanding loans if the platform shutters. They would also be held to same client money rules that must be followed by other financial institutions.
Roche-Saunders told the publication those rules for P2P players could potentially be even more strict than they are for other firms. But other regulations, she added, are slated to actually help the market continue its growth — for example, the recently announced inclusion of P2P lending in the individual savings account wrapper, a move industry experts predict will boost transparency in the industry.
Still, there is no saying just how the FCA’s regulation will impact the growth and development of the U.K.’s P2P lending industry, and Business Insider analysts named regulators as a key risk that could “derail” its recent successes, along with interest rate increases and the collapse of positive relationships with the banks.
More likely, some analysts say, is that the influx of P2P lending competitors will naturally weed out the winners from the losers. After all, not everyone can survive. Liberum analyst Cormac Leech, for instance, believes that about 90 percent of new alternative lending players emerging in the market today are doomed to fail. And whether regulation will quicken or reduce the rate of failure is sure to be closely watched by other P2P markets around the globe.