BANKS, fund managers and insurers will need to adapt or die in response to the “meteoric” growth of peer-to-peer lending, a new report has said.
The P2P industry is set to do for financial services what disruptors like Airbnb, Uber and Amazon have done for the retail economy, according to a study by financial services consultancy firm Altus Consulting.
“P2P lending in the UK is little more than 10 years old, but already the market is crowded with almost 100 firms and business volumes growing at 70 per cent per annum,” said the report.
“It is a meteoric rate of expansion and one which puts P2P on a collision course with today’s financial services industry.”
P2P platforms have grown to manage almost £7.5bn today with a Compound Annual Growth Rate (CAGR) of 123 per cent from 2010-2014, the research said. Morgan Stanley expects the market to reach $290bn (£237.1bn) by 2020.
Altus Consulting predicts that the entire financial services sector including wrap platforms, fund managers, insurers, banks, credit card providers, advisers and regulators will need to adjust.
“As a result of the K-T extinction event some species were wiped out almost immediately but others, lower down the food chain, experienced a slow painful death,” said the report. “It could be very similar in financial services when the P2P meteor hits.”
P2P poses a particular threat to banks, fund managers and insurance companies, according to the report.
“Banks and credit card providers will be the first group to be affected,” said the study. “They risk a significant loss of clients to P2P platforms. New innovative ‘at point of sale’ financing options for everything from buy-to-let mortgages, phones and cars is rapidly eating into their market.
“Fund managers will be likely to lose significant assets under management to P2P platforms, especially once the IFISA goes live and the ‘connected parties’ issue with SIPPs is resolved.
“Insurance companies will take a little longer to be affected but eventually they will start to see competition for basic insurance products from new P2P insurance platforms. Already we are beginning to see early examples of this with new entrants such as Friendsurance and, most recently, Lemonade.”
The report said that banks should start looking at ways to collaborate with P2P platforms, fund managers should invest in institutional P2P assets and insurance companies could diversify or adopt P2P technology.
Altus Consulting predicts the industry will evolve from its current make-up of retail and institutional investors. By 2020, it expects new open-ended funds to enter the P2P market, encouraging new sources of capital, especially from the corporate pensions sector. It also predicts the rise of aggregator websites, such as LendingWell and Goji.
“The P2P meteorite has well and truly landed and a new food chain is evolving rapidly,” it said. “If Indiegogo and Kickstarter were the ancestors of the sector, then today’s platforms like Zopa and RateSetter will soon become part of a symbiotic relationship, sourcing funds from aggregators like LendingWell and lending through partners like Zoopla.
“Looking further in to the future we predict a plethora of start-ups adopting the ‘crowd’ model which threaten to destabilise the established financial services order.”