Robert Pettigrew, director at the Peer-to-Peer Finance Association, explains why it’s more important than ever for P2P platforms to stand up to scrutiny.
The level of public scrutiny of peer-to-peer lending, in one respect, has acquired a greater prominence in recent months. Interventions from various policy-makers, commentators and publications have increased the volume of words spoken as well as opinions expressed.
From the Peer-to-Peer Finance Association (P2PFA)’s perspective, this interest is a welcome opportunity to debate the contribution which this rapidly-growing component of the alternative finance landscape can make to the needs of the wider economy and ensure that the nature of the benefits and risks of investing through P2P lending platforms is more broadly understood.
More than £5.8bn has been lent through P2PFA member platforms since 2010, thanks to exponential growth over the course of the last ten years. To place this achievement in context: peer-to-peer lending platforms are relatively nascent small businesses, operating in a digital economy, competing in well-established markets dominated by long-standing incumbent institutions.
The continued existence of any P2P lending platform in that market depends entirely upon being able to create sufficient value to attract and sustain the involvement of investors and borrowers. Much of the growth has been achieved through the high quality of customer service which platforms have delivered, combined with expeditious decision-making compared with other financial service alternatives, but the calibre of credit risk management is the most important factor determining the continuing existence and prosperity of the sector.
The P2PFA has presented consistent arguments for the introduction of balanced rules to ensure high-standards of business practice that embed consumer confidence. This includes a commitment to an unrivalled level of transparency – articulated in the Association’s Operating Principles – to enable informed investors to make sound decisions which match their desired exposure with their appetite for risk.
A platform’s ability to manage this relationship is central to the sustainability of their business models, and these requirements align market incentives with sound business practice. All P2PFA platforms are committed to ensuring that consumers and businesses considering investing or borrowing are fully aware of the rewards and risks of P2P lending.
The level of scrutiny on P2P lending appears to have coincided with growth in the sector. It seems quite probable that this will continue to develop, particularly as the Financial Conduct Authority’s post-implementation review of regulation progresses. P2P lending now stands firmly in the mainstream of alternative finance. It should be able to continue to expand its offering, extending an opportunity for retail consumers to access investment products offering a greater level of return than bank deposits, without the relatively higher level of risk associated with equity markets.
The interests of investors, borrowers and the economy deserve prominence in the unfolding debate, and the P2PFA is looking forward to being a pro-active contributor to that continuing discussion.