With the Brexit deadline looming ever closer, what does the future look like for UK peer-to-peer lending after we exit the bloc?
If a week is a long time in politics, two years must seem like a lifetime. But that is how long it has been since the UK voted to exit the European Union, and with less than a year to go until Brexit is official on 29 March 2019, should peer-to-peer lenders be concerned?
Perhaps one of the most memorable aspects of the Remain campaign was then-Chancellor George Osborne’s threats that a vote to leave would send property prices crashing.
If this were to happen, many of the P2P lenders in the popular property, buy-to-let and development lending space would have suffered. But this prediction failed to materialise, and platforms insist it is business as usual.
“While the market has plateaued, it’s heartening to see that the fears of a significant and lasting decline in the property market haven’t been lived out,” says Sam Handfield-Jones, director of property P2P platform Octopus Choice.
“Though of course it’ll be interesting to see how the market fares over the next few years.”
There is still plenty that could shake both the property market and the wider economy – and by extension the P2P sector – if the Brexit negotiations end up going wrong though.
Economics research consultancy Capital Economics thinks that the main risks facing the UK are: running out of negotiating time and reverting to World Trade Organisation tariffs; a leadership challenge or general election that would create political instability; or parliament voting against any deal.
“Brexit doesn’t appear to have had too much impact on consumer confidence yet,” says Victoria Gregory, analyst for Capital Economics.
“There are a number of risks on the horizon but so long as progress continues to be made the economy doesn’t seem likely to be buffeted too hard by Brexit uncertainty over the next few years.”
It is against this backdrop that it is business as usual for P2P platforms.
Individuals, property professionals and small- and medium-sized businesses still need to borrow money, while investors are still searching for yield.
All these parties often find themselves ignored by the banks.
Narinder Khattoare, chief executive of P2P bridging and development lender Kuflink, explains that while the London property market has undergone a correction – which has been attributed by many to the high prices and stamp duty costs rather than Brexit – there are opportunities elsewhere.
“There hasn’t really been a downturn, investors are driving more towards P2P because it offers higher interest rates than the mainstream market and there is still demand to borrow for property,” he says.
“There is uncertainty but people will always want to move and will always want a property so there will always be a demand.
“We haven’t seen a decrease in the number of borrowers, what we have seen is more competitive pricing.”
It is a similar picture in the small- and medium-sized enterprise (SME) lending space.
Stuart Lunn, co-founder and chief executive of LendingCrowd, said investors may want to invest smaller amounts due to the uncertainty, but insisted the higher rates offered by P2P platforms maintain the sector’s attractiveness.
“Small businesses are nimble and adept at ‘getting on with it’; Brexit is just one issue that they have to deal with, and LendingCrowd has just completed its best-ever month in terms of loan origination,” Lunn explains.
“Smaller businesses tend to serve a local, rather than overseas, market. As a result, they are potentially more resilient to any Brexit impacts.
“As with any period of uncertainty, some businesses may be discouraged from borrowing and making significant investment decisions, but P2P platforms offer a flexible alternative to the banks and can deploy funds quickly to satisfy both borrower and investor demand.
“The fundamentals of the P2P market, including affordable rates for borrowers and the potential for higher returns for investors, remain sound.”
Additionally, it is worth remembering that it is the banks that have a poor track record when it comes to shutting up shop in times of uncertainty, which P2P firms argue leaves the way open for alternative finance providers.
“Banks and traditional lenders typically pull out of lending due to uncertainty so supply is likely to fall,” explains Karteek Patel, co-founder of P2P business lender Crowdstacker.
“The business community’s recent memory of the financial crisis will accelerate the need to diversify their funding streams.”
As well as providing an alternative for business loans, P2P lenders could also benefit in the invoice finance space if uncertainty in the economy means invoices start getting paid later.
“In light of Brexit difficulties, invoice finance is a preferred method of business lending for SMEs when a variety of businesses feel that they need more ready access to cash,” says Benjamin Gedeon, chief executive of P2P invoice finance platform MatchPlace.
“Businesses that are expecting their customers to take longer to pay can opt for the flexibility of the P2P platform. Invoice funding is an alternative finance product that can help SMEs in these circumstances. Regulation and tools used by the P2P lending platforms will help to make the lending market more secure.”
So it seems there are some reasons to be cheerful. In fact, P2P platforms such as Kuflink and MatchPlace have launched after the Brexit vote, suggesting the sector isn’t feeling the threat of leaving the EU.
However, one area where P2P lenders in the UK could lose influence after Brexit is ongoing moves toward cross-border regulation of the sector on the continent.
“The European Commission has started considering harmonising P2P regulation across member states under the Capital Market Union action plan,” says Iain Niblock, chief executive and co-founder of P2P analysis firm Orca Money.
“The UK regulatory framework for P2P lending could be used as an example to follow, however with Brexit negotiations ongoing the UK’s influence over this type of policy will have been reduced.
“That is bad news for UK platforms with crossborder growth ambitions.”
European P2P lending and analysis firm Robo.cash said the experience of British platforms will allow the country to keep its leading fintech position for a long time but warned many platforms on the continent are increasingly thinking globally, where rates for investors will be better.
“This period is characterized by intensified international financial projects in alternative lending,” says a spokesperson for Robo.cash.
“Our platform is among them: it is based in Latvia and lends to Spain and Kazakhstan. Currently, we notice the growing financing of developing countries in Eastern Europe, Asia, and Africa coming from Europe.”
The spokesperson confirmed that British investors would still be able to lend through its platform after Brexit.
So far, only business P2P lender Funding Circle has significant European operations in Germany and the Netherlands, but there seems to have been very little appetite for others to expand onto the continent.
Instead, there is a feeling that European lenders could be attracted to the already-established UK market.
“International businesses may see a weaker pound as a good thing – the UK’s P2P sector is growing and could attract large European investors looking to enter new markets, although they may balk at the additional barriers they will face in obtaining UK customers,” Lunn suggests.
“European lenders may be more likely to acquire UK platforms than navigate a shifting regulatory landscape and create their own operations from scratch.
“Likewise, expansion of UK businesses into EU countries is likely to be lower until it becomes clearer exactly which additional costs and burdens may apply.”
He said UK investors already have access to a wide range of platforms and said while some may look abroad, they could be put off by any additional costs.
Closer to home, a more pressing political issue is freedom of movement, which could impact access to skills for P2P lenders, depending on how the UK’s immigration policy ends up after Brexit.
Carly Lake, of fintech recruiters Certus, says that recruitment slowed down in the first months following the Brexit vote but has since bounced back.
“London, whether in the EU or not, is still a massive hub,” she explains.
“If we come out of the EU fully and need visas to travel around, that may have an impact on work, but there is no evidence of that happening.
“We are still far away from that point and until then panic is never a good idea.”
Lunn says he has heard “anecdotal evidence” of a reduction in the number of overseas candidates looking to enter the market, but so far hasn’t seen any impact at LendingCrowd’s Edinburgh headquarters.
Similarly, several P2P lenders in London have told Peer2Peer Finance News that they have not faced any issues.
However, some professionals working in career development and fintech recruitment insist that staffing risks may be on the horizon.
Dan Kiernan, career development consultant at Henley Business School, said he has already seen a fall in the number of international students expressing an interest in staying and working in the UK.
“In a decade we might be looking at exciting fintech firms in Germany, Scandinavia or even further afield and rueing a missed opportunity,” he asserts.
He says that London retains its other advantages of a deep pool of venture capital, a huge financial services industry and a sympathetic regulator, but may suffer without talent.
“But without access to talent, firms will find it hard to leverage these advantages,” he adds.
The government has said it is committed to backing fintech and there is support in the form of an exceptional talent visa, run by Tech Nation for the Home Office, that helps firms secure staff with particular skills from abroad. The visa was launched in 2015 and made available for 1,000 people a year, but increased to 2,000 in 2017.
MarketInvoice was among the first P2P lenders to make use of this, nabbing Rija Javed from Silicon Valley in the US as chief technology officer last month.
That isn’t to say there won’t be any British talent post-Brexit.
Property platform Lendy says it is already recruiting skilled individuals from established financial brands.
“At Lendy, we have attracted people from an institutional background, such as RBS and HSBC,” Paul Riddell, head of marketing for Lendy, explains.
“However we are now seeing signs of people moving around within the sector as it has grown and people have developed skills. We have not, so far at least, experienced any change to this as a result of Brexit.”
Handfield-Jones has revealed that Octopus Choice is launching its own academy to address any potential skills gap.
“In a post-Brexit Britain, we need to lean on our world-leading educational establishments, as well as the UK’s impressive assembly of fintech companies, to nurture home-grown expertise,” he says.
While politicians may be arguing out the finer details of customs arrangements, freedom of movement and single market access, whether by choice or continued demand, it seems it is business as usual for P2P.
This article featured in the July edition of Peer2Peer Finance News, now available to read online.