RECENT moves by peer-to-peer lenders to cap new money transfers have highlighted an imbalance between an influx of interest from yield-hungry investors and demand from borrowers.
Historically low interest rates and rising inflation continue to push consumers into P2P lending as a profitable – and, so far, low-risk – investment.
And with Innovative Finance ISA launches lining up, more and more investors looking to put their money to work before the end of the tax year may be drawn to the sector for the first time.
This leaves P2P platforms racking their brains to find the right strategy to attract new borrowers without loosening their underwriting standards.
Boosting their distribution network is likely to be the most obvious route, as partnering up with tax and investment advisors and fintech start-ups can help them reach a broader consumer and business base.
Read more: MoneyThing faces shortage of borrowers
Lending Works is preparing to unveil a new strategic partnership, a spokesperson told Peer-to-Peer Finance News.
“Our focus has been on unlocking new channels for loan origination, and, to do this, we have been working behind the scenes on some exciting new partnerships, one of which will be going live very soon,” he said.
“We expect this focus on partnerships to be at the core of our strategy going forward.”
But stepping up marketing and distribution might just be the least daring move P2P players are willing to make.
One of the major platforms is understood to be considering to go as far as lowering the fees it charges to borrowers.
Even the smallest difference in absolute pricing between P2P providers hugely impacts the volumes they attract from borrowers, creating a “staggering” gap between the cheapest and the third-cheapest provider, according to an industry insider.
While re-jigging interest rates has become common practice among platforms looking to adjust to an increasingly competitive lending market, altering borrowers’ fees is more unusual.
And it would be the clearest sign to date that P2P players are ready to step up their game to attract new borrowers.
Expanding into other sectors could also boost loan origination. Zopa, which usually specialises in unsecured consumer loans, recently told P2PFN that it is mulling an expansion into the secured auto finance space.
“People are getting poor deals in that area and end up paying significantly higher annual percentage rates (APRs) than they would if they arranged their financing before going into a dealership,” said Amy Miller, Zopa’s chief marketing officer.
Tapping into unmet demand from secured borrowers could help Zopa match new investment, as it had to stop accepting new money transfers temporarily in December due to fund availability exceeding borrowers’ demand.
Read more: Zopa re-opens to new investors
The firm said it is also looking to to broaden its product range to include balloon-payment loans – a type of funding that does not fully amortise over monthly repayments and involves a lump-sum payment at the end of its term.
This structure typically attracts borrowers looking for lower interest rates and for the option to refinance their loan at the end of the term.
And it is also looking to offer a more diverse range of month-based maturities, such as 18-month loans. So far it only offered loans with year-based maturities.
With a realm of strategies in place, it appears that the P2P industry is being as innovative as ever to meet its latest challenge.