PEER-TO-PEER business lending volumes soared by two thirds year-on-year to surpass £2bn in 2017, according to new research.
The fifth annual UK Alternative Finance Industry Report, compiled by the Cambridge Centre for Alternative Finance (CCAF), found that transaction volumes across the UK’s alternative finance sector – both debt and equity – grew by 35 per cent year-on-year to £6.2bn in 2017.
P2P business lending retained the largest share of the market in 2017, followed by P2P consumer lending and then P2P property lending.
P2P consumer lending grew by 20 per cent over the period to £1.4bn, while the rate of P2P property lending slowed to six per cent, reaching £1.22bn in 2017.
“The Cambridge team have once again brought to life the ongoing growth and development of the P2P sector,” said Rhydian Lewis, chief executive and founder of RateSetter.
“This report illustrates how P2P lending is inching its way unstoppably to becoming a mainstream part of the financial system in the UK, opening up a huge, previously inaccessible pool of returns for everyday investors and a competitive alternative to bank finance for consumer and business borrowers.”
The CCAF’s research team surveyed 75 UK online alternative finance platforms between May 2018 and September 2018, capturing an estimated 95 per cent of the market. It added data from two additional platforms using web-scraping methods, bringing the overall research sample size to 77 platforms.
P2P business lending was hailed as “an increasingly important contributor to overall SME financing in the UK,” equating to 29.2 per cent of all new bank loans to small businesses in 2017.
The report also noted that the percentage of potential borrowers whose initial applications were deemed qualified enough to proceed on P2P business platforms declined in 2017 to 12 per cent from 38 per cent in 2016.
However, this seems to have had a positive effect on the percentage of applicants who were able to receive funding, with the successful funding rate soaring to 96 per cent in 2017 from 31 per cent in 2016.
“This implies that, while the number of borrowers that were deemed sufficiently qualified to raise funds and create campaigns decreased, the quality and overall success of these campaigns significantly increased,” the report said.
The report also found that concerns over risks have broadly increased across the whole UK alternative finance industry.
42 per cent of the surveyed platforms rated the risk of fraud as either very high or high, up from 29 per cent in 2016.
And 35 per cent of respondents regarded the risk of a notable increase in default rates as either very high or high, compared to the 17 per cent recorded in 2016.
It appears that the industry did not predict the significant regulatory shake-up proposed by the Financial Conduct Authority this year. Only 33 per cent of surveyed platforms cited regulatory change as a very high or high risk last year.
Institutional funding increased across all segments of P2P lending last year. The report found that 40 per cent of investment into P2P business platforms came from institutions in 2017, up from 28 per cent in 2016.
Institutions provided 39 per cent of funding into P2P consumer lenders in 2017, up from 32 per cent in 2016.
And in property lending, the figure rose to 34 per cent from 25 per cent.
The CCAF report also showed that equity-based crowdfunding grew by 22 per cent year-on-year to £333m, while real estate crowdfunding volumes increased by more than 200 per cent to £211m.
However, debt-based securities dropped by £5m to £79m, and reward-based crowdfunding actually decreased by £4m year-on-year to £44m.
“This report reflects an industry that is playing an increasingly important role in helping consumers and businesses access finance, whilst growing to become more diversified, sophisticated and institutionalised,” said Bryan Zhang, executive director of the CCAF.