There has been no shortage of negative news stories about the financial landscape recently – and peer-to-peer lending has not been immune. But amid all the doom and gloom, a few potential upsides have emerged for P2P lenders.
1. High-quality loan potential
The coronavirus pandemic has led to a near-global lockdown, shuttering countless small- and medium-sized enterprises (SMEs), forcing construction workers to abandon property projects, and causing families to cut back their spending due to employment uncertainty. These businesses, property developers and families need access to finance, and it just so happens that SME lending, property-backed loans and consumer P2P lending form the core of the UK’s P2P market.
The majority of P2P platforms have not stopped lending, and they are well placed to take advantage of the flood of new loan applications that is surely on its way. What’s more, these loans will be requested by high-quality borrowers who have been left out of pocket through no fault of their own. This presents a great opportunity for P2P lenders to improve the diversity and liquidity of their platforms by matching lenders with SMEs and other borrowers who have a strong track record and a good future.
2. Investor appetite for IFISAs
The pandemic has not just impacted borrowers – investors have been struggling with the historically low interest rates on offer at the bank, and unprecedented stock market volatility. There has never been a greater need for an investment product that can offer steady, inflation-beating returns within an ISA tax wrapper.
In the three years since the Innovative Finance ISA (IFISA) was launched, inflows have grown from just £36m in year one, to more than £1bn today. But this is small fry when compared with the £69bn that was invested in adult ISAs by the end of the 2017/18 tax year. If just 10 per cent of those existing ISA investors chose to transfer their ISA balance to an IFISA, it would bring the value of the IFISA market close to £8bn. For IFISA-authorised P2P platforms, this would be transformative.
3. Better government relations
Historically, the P2P sector has had to fight to gain the approval of the UK government. To this day, just a handful of platforms have been offered funding through the government-backed British Business Bank scheme, while the Bank Referral Scheme has been criticised for a lack of access for alternative SME lenders such as P2P platforms. Meanwhile, the government has repeatedly refused to weigh in on regulatory issues which relate to P2P – instead referring all parliamentary queries to the Financial Conduct Authority (FCA).
But the relationship between the government and P2P lenders could be on the brink of a big change. The dire need for SME funding has created a range of new government-backed lending schemes – most notably, the Coronavirus Business Interruption Loan Scheme (CBILS). The scheme’s eligibility has been expanded, meaning that P2P lenders can take part – which could represent a huge opportunity for P2P platforms to prove their value on a national stage.
4. Chance to prove itself in a downturn
One of the key criticisms levelled against the P2P sector has been its short track record. Financial advisers and analysts have repeatedly pointed out that P2P has yet to prove that it can survive an economic downturn. All the economic forecasts suggest that we are headed for a global recession, so P2P platforms can finally show sceptics that it is a strong and valuable business model that can adapt and evolve in any economic climate.
5. Good PR
Over the past few days and weeks, there have been some glimmers of optimism and hope among the pandemic-centric news, and P2P platforms have been leading the charge. Zopa has told borrowers if they have any trouble making repayments, they can ask for a payment freeze, while RateSetter and Funding Circle have urged borrowers to get in touch if they are facing difficulties. Crowd2Fund has waived its investor fees for NHS workers. And two members of the Loanpad team have joined forces with a team of engineers to help make breathing aids for coronavirus patients.
These actions highlight the difference between P2P lenders and high street banks – P2P lenders have demonstrated compassion where banks have been accused of cynicism, and P2P platforms have the ability to respond quickly and decisively to a changing economic climate. What’s more, the strong technology proposition behind P2P platforms has made it easy for platform employees to work from home with minimal disruption.
P2P lending was created for socially beneficial reasons, and financial inclusion is now more important than ever. Now is the time for P2P platforms to show UK borrowers and investors what they can do, and how they can help. If they get it right, we might all emerge from the dark cloud of coronavirus with a substantial silver lining.