THE BIGGEST peer-to-peer lenders in the UK – Zopa, Funding Circle and RateSetter – have taken decidedly different approaches to their growth.
The world’s oldest P2P lender, Zopa, has been focused on launching a digital bank to complement its consumer P2P lending business.
Meanwhile business lender Funding Circle has launched an initial public offering (IPO) and expanded internationally, while RateSetter has maintained its focus on retail investors and its diversity of loan types but revamped its investment product range. However, scaling up does not come without its challenges.
Zopa struggled to raise the funding it needed to gain a full banking licence, completing the deal just in time for its regulatory deadline. Funding Circle’s share price fell to less than a quarter of its IPO value within a year of its listing despite strong revenue growth and RateSetter is only now beginning to approach profitability. All three brand names have revised their investor interest rates downwards over the past few months.
Despite these hurdles, analysts have praised the industry leaders for their strikingly different approaches to scalability and noted the untapped potential that still remains for P2P lenders of all sizes. “[The ‘big three’] are all pursuing very different models,” said John Cronin, an analyst at stockbroker Goodbody.
“While the sector is in the spotlight in a very negative context right now, I don’t think that’s a reflection of the lack of growth. Yes, defaults have risen and like any industry it is maturing, and I guess some of the lending and funding they’ve provided has been of the high-risk variety, but I don’t think they’ve peaked in terms of their viability.”
Neil Faulkner, managing director of P2P analysis firm 4th Way, added that Funding Circle’s “rapid growth” is now behind it and the platform “will become profitable”. On Zopa, Faulkner said that its bank launch has ensured that it “likely has a good path to further strong growth in the coming years”, while RateSetter “will probably grow in spurts as and when it successfully tests new product lines”.
“Growth will slow for the big platforms, but paths are still available for substantial expansion,” Faulkner added.