THE WORLD’S oldest peer-to-peer lender Zopa marked 15 years of lending last month and its anniversary also represents a milestone for the wider sector.
Zopa was the first P2P lender to launch, with a remit to link interest starved savers with better rates by backing personal loans to borrowers who were struggling to get them from banks. One of its founders, Giles Andrews, said at the time of its launch in 2005 that Zopa wanted to create an eBay for money.
Now in 2020, Zopa has been joined by several other platforms bidding for borrowers and investors offering personal, property, business and other asset backed P2P loans. What started as a niche alternative investment has transformed into a multi-billion-pound sector regulated by the Financial Conduct Authority with its own tax wrapper in the form of the Innovative Finance ISA.
The sector has also evolved since 2005, with more institutional investment and expansions such as the launch of Zopa Bank. There have also been a few high-profile exits, with Landbay and ThinCats shifting to focus on institutional investment. And, of course, there have been a clutch of failures such as the collapse of Collateral, Lendy and FundingSecure.
“It’s hard to ignore the high-profile failures from last year, as a couple of platforms were found wanting in their underwriting and valuations processes,” said Jonathan Minter, an analyst at Intelligent Partnership. “The new regulatory regime should help weed out the worst cases of bad practice in the industry, and massively improve disclosure, which should actually help reduce risk.
“As the industry becomes more mature and the various players become more established, we would expect underwriting standards to improve.” Bruce Davis, co-founder of Abundance Investment and an early member of Zopa’s team, said P2P works best when it remembers its roots in “understanding the social life of money and connecting people rather than creating profits from abstract financial engineering.”
This is a view echoed by Nic Conner, former public relations manager at P2P business lender Growth Street, which restructured its business to a digital origination strategy last year. He is now a research consultant for analyst Rangewell and said the sector has undergone a big evolution. “I saw first-hand when I worked at Growth Street how the environment around P2P changed,” he said. “This has only spurred many platforms to look at funding lines away from the traditional P2P customers.
“We are out of the gold rush of P2P. It served a purpose to help startup lenders scale and compete in the market. “In the next few years, we will see poor performing lenders exit the market, whilst at the other end the successful propositions will move away from retail money to institutional. “We may see the volume of P2P lenders go down but there certainly will always be an offering to investors.
“This unique funding model has its place and after a natural selection process in the market over the next year or two, I’m sure the proposition will still be attractive to investors.”