THE UK’S peer-to-peer lending sector is set to experience “significant further growth”, according to Standard & Poor’s.
A report released by the ratings agency this week said that the growing involvement of institutional funds and increased securitisation issuance are set to boost the industry.
“Furthermore, there has also been involvement from certain government-supported entities such as the British Business Bank and European Investment Fund to support certain lenders, such as Funding Circle, with the aim of boosting access to finance for small- and medium-sized enterprises,” the report added.
It said it expects to see more securitisations in the sector throughout Europe this year and beyond.
However, the report also suggested that peer-to-peer lenders have less ‘skin in the game’ than traditional lenders, as many platforms’ primary sources of revenue come from origination and servicing fees, rather than the interest and fees collected on loans.
This poses a risk to underwriting standards and loan quality, the report said, although companies are motivated to build a sustainable business and generate ongoing servicing fees.
“Examples of some platforms implementing additional measures to further align interests include some transactions in the UK where the servicing fee is only paid on performing loans,” Standard & Poor’s said.
Going forward, the ratings agency said that the risks in peer-to-peer lending securitisations are declining, thanks to improvements as lenders operate over a longer period of time.
“Consequently, when we rate these deals, we often have access to a greater amount of performance history,” it said. “Furthermore, as the regulatory environment continues to mature, many lenders have adapted by increasing their compliance and control functions, which has often resulted in stronger alignment of interests.”
“We believe that securitizations of MPL assets will increase in both the U.S. and Europe in the next few years and that significant further growth is likely due to a number of factors, including the growing involvement of institutional funds and increasing investor demand.”
The research echoes a report released by credit agency DBRS in February that also predicted that securitisation would fuel the growth of marketplace lending.