AN ECONOMIC downturn is predicted to lead to consolidation in the peer-to-peer lending sector, with an analyst hailing RateSetter as a business model that is “more likely to swim than sink.”
A weakening UK economy, impacted by Brexit uncertainty and global trade wars, has bolstered the likelihood of an imminent recession, leading to speculation about the impact on P2P platforms.
“A downturn could stimulate some much-needed consolidation in the space – a backdrop that would see winners and losers emerge,” said John Cronin, analyst for Goodbody.
He added that RateSetter “has stuck with its reliance on retail depositors searching for an alternative to bank deposits, has therefore avoided taking undue risk in the quest for high returns, and does not spend excessively on marketing.
“A sign of a well-managed business – and one that is more likely to swim than sink as the sector matures.”
His comments follow a Financial Times opinion piece by Robert Armstrong which claimed banks have a structural advantage over P2P lenders as they can more easily access funding from deposits and the wholesale markets.
However, he predicted that the P2P platforms that survive a recession would be larger and stronger, with more investor confidence and thus lower cost of capital.
Read more: M&A special feature
There have been years of speculation about consolidation in the P2P lending sector, which so far has not materialised to any great extent.
Cronin said at the time of Funding Circle’s float last year that it “will serve as a catalyst to stimulate much-needed consolidation in the P2P sector”.
BDO has also made similar predictions for the business lending market.