The Covid-19 pandemic has already made its mark on the UK’s peer-to-peer lending community – particularly when it comes to retail investors.
A number of platforms, including Octopus Choice, Funding Circle, Lending Works and Growth Street, have paused retail lending on their sites. Other platforms are reporting a surge of activity in their secondary markets, where retail investors go to sell off unwanted loans, and pick up loan parts at a discount.
Retail investors have also had to contend with the ongoing worry of rising defaults, as consumers, small businesses and property developers struggle with the economic side effects of the pandemic.
While the coronavirus business interruption loan scheme (CBILS) has provided a boost for accredited platforms, retail investors have been excluded from government-backed schemes. Among the few P2P platforms that have been approved to offer CBILS loans, the one thing they have in common is access to a significant pool of institutional funding.
So where does this leave the retail investor?
Retail investors were once the bread and butter of P2P lending. But a combination of increasing competition, astute regulation and high-profile platform failures have encouraged the larger platforms to diversify their investor base in an effort to both safeguard their business and reduce the risk for retail investors.
And Covid-19 appears to have accelerated this shift in the P2P investor demographic.
Over the past few weeks, we have seen two of the largest retail-focused P2P platforms – RateSetter and Lending Works – moving towards an institutional/retail hybrid model.
RateSetter’s chief executive Rhydian Lewis exclusively told Peer2Peer Finance News last month that the platform was looking to get institutions on board next year.
Currently, RateSetter is almost completely funded by retail money with a few historical institutional investments.
And recent reports of a possible acquisition by Metro Bank could result in further institutional involvement.
Meanwhile, after Lending Works’ surprise announcement that it was being acquired by a special situations fund manager – Intriva Capital – the platform told investors that its intention was to bring on more institutional funding as it scales up over the next few years.
This leaves just a clutch of retail-only platforms on the market today, with most of the larger P2P brands choosing to accept either a mix of institutional and retail money, or institutional money only.
Of course, there are many benefits to this hybrid model, such as the ability to fund more projects and the stamp of approval that institutional backing provides can be attractive to retail co-investors.
One of the strengths of the UK’s P2P market is its ability to evolve to meet the challenges of the day. Covid-19 certainly represents an era-defining challenge for most companies – particularly those companies which specialise in offering loans to small businesses and consumers. With the risk of defaults still on the horizon, and a long period of economic recession ahead of us, it is no surprise that so many platforms are widening their horizons and looking beyond the limited coffers of the retail investor.
But when retail investors are no longer the focus of the platforms’ attention, can we still call it “peer” to peer lending?