READING the mainstream media, one would be forgiven for thinking that peer-to-peer lending is over, investors have left in their droves and only someone completely out of options and rejected by every bank in the country would ever consider a P2P loan.
But this is far from the case.
Of course, the high-profile collapses of P2P platforms Collateral and Lendy damaged the industry’s reputation to some extent. These investment losses have had a devastating impact on real people’s lives.
But these bad apples do not paint a complete picture.
Recent data from the Peer-to-Peer Finance Association has shown “a record level of involvement in the sector”. More than 150,000 investors were funding more than 320,000 loans originated by P2PFA platform members as of the end of the second quarter, with cumulative lending surpassing £11.3bn – and these figures don’t even represent the entire market.
Meanwhile, the Innovative Finance ISA – essentially a tax wrapper around P2P investments – has hit the £1bn barrier and is set for even stronger growth when we enter the next ISA season.
Of course, you can’t judge an industry’s evolution purely on the numbers, as it’s about the way it comports itself as well. A lengthy post-implementation review of the sector culminated in updated regulations this June, which come into effect in December.
Platforms will be mandated to ramp up their transparency and disclosure, although it should be noted that many platforms are already adhering to high standards of transparency (see our recent feature on the topic).
They will also be required to implement investor marketing restrictions, in the form of categorisation and appropriateness tests.
The industry reaction to what will undoubtedly be a hefty compliance task has been generally positive, with a universal understanding that more stringent rules will help protect its customers and satiate its critics.
Those platforms that do not comply with the new rules will likely fall by the wayside, which will benefit the industry as a whole.
Armed with growing customer numbers and more comprehensive regulations, the industry is showing no signs of slowing down. This is evidential in the number of platforms embarking on new funding rounds (such as The House Crowd and Crowd2Fund), new product launches (Cogress and Wellesley) and even new platform launches (Nexa Finance and SquareDeal.Finance).
Critics’ usual response to the industry’s growth is that the whole thing will end in tears when a recession hits. I find this argument a bit tiresome. Which industry won’t be affected by a recession? Which industry won’t see some consolidation in the event of an economic downturn? And clearly – as the example of Thomas Cook this week shows – years in operation does not equate to strong governance, customer protection and a promising future.
When it comes to the P2P sector, ignore the noise and look at the facts – the industry is here to stay.