In case you missed it in our latest issue of the magazine, check out our annual survey of the peer-to-peer lending industry and investors. Click here to access the full report.
THE 2018 Peer2Peer Finance News annual survey comes at an interesting time for the sector, with the long-awaited release of the Financial Conduct Authority’s (FCA) post-implementation review and an economic environment dictated by Brexit and interest rate speculation.
It has been a busy 12 months since our last survey in September 2017, with the main P2P brands now fully regulated and offering Innovative Finance ISAs (IFISA), while the City watchdog’s resolve was tested by the collapse of Collateral.
Our survey sheds light on how platforms and investors are responding to the ever-changing P2P world, and while the sector will continue to provide a viable alternative to the mainstream for both investors and borrowers, it looks like pricing may start to get tighter.
The majority of industry professionals surveyed do not expect borrower rates to decrease. 41.67 per cent of respondents predicted rates to go up in 12 months and another 41.67 per cent
said there would be no change, while just 16.67 per cent said rates would increase.
Ultimately, this suggests the cost of P2P borrowing will not get any cheaper, although it may still be compared to mainstream banks where rates are also increasing off the back of the Bank of England base rate hike.
On the other side of the P2P spectrum, investors may already be getting decent returns from P2P, but just 25.53 per cent of industry respondents expect rates to increase over the next 12 months. Another 25.5 per cent expect investors’ rates of return to go down and 48.94 per cent said there
would be no change. This approach to rates may be reflective of increased default expectations and more economic uncertainty amid platforms. Almost two thirds, 62.5 per cent, said they expected defaults to increase over the next 12 months, and a similar 66.67 per cent said they expect the wider credit markets to tighten.
The P2P sector has also become more concerned about its own business growth. The majority of industry respondents, 70.83 per cent, said they are confident about their business growth over the next year, but more have expressed uncertainty about their future compared with last year’s poll. Almost 10 per cent said they were either slightly or extremely unconfident about their prospects this year, while no-one expressed such concern in the 2017 survey.
Some of this uncertainty could be placed at the door of the FCA. A fifth of respondents warned that the City watchdog’s post-implementation review would result in platform closures and 22.92 per cent anticipated lower interest rates as a result of the proposals. However, the majority, 60 per cent, still believe the changes will create higher standards across the industry.
Any drastic changes to interest rates could deter P2P enthusiasts, especially as 77.92 per of investors surveyed cited yield as the main reason for investing in P2P.
Interestingly, despite many P2P platforms using their IFISA-offering as a key marketing tool, just 9.09 per cent of investors cited tax-free earnings as their main reason for using P2P. Another 10 per cent said they used P2P for diversification.
This was reflected in how P2P investors said they choose their platform. The most popular factor was whether loans were secured. The second biggest factor was the use of provision funds, while having an IFISA ranked third.
Many are taking diversification seriously, with 40.38 per cent of investors putting money into two to four platforms and 32.05 per cent using five to seven. Only 5.77 per cent use just one.
P2P platforms may still have their work cut out in retaining investors though, with almost half, 43.87 per cent, more wary of the sector since Collateral’s collapse.
Separately, a fifth said they may move their funds to a rival platform due to lack of trust in a company, while 26.45 per cent were seeking more diversification.
P2P platforms have spent the previous 12 months getting regulation and ISA-ready, but have remained competitive for investors and borrowers throughout. The test now is for them to maintain that service as they head toward an environment of rising rates, tighter credit markets and evolving regulation.
This survey featured in the September issue of Peer2Peer Finance News, now available to read online.