Sarah Balsom, senior manager at Quantuma, explains how peer-to-peer lending platforms can make the most of the crisis…
As the UK continues to take tentative steps towards exiting full lockdown conditions, many businesses are starting to turn their attention to planning for life as commerce starts to return to a semblance of normality – albeit what ‘normal’ will look like is yet to be determined. Whether your lending platform has been left relatively unscathed from the impact of Covid-19, or you are still working towards a recovery, it is our view that as the UK exits full lockdown the peer-to-peer lending sector will see market growth opportunities.
Discussions with businesses we are advising has revealed that after Covid-19, there is likely to be a significant dash for cash from corporates as the UK government withdraws the extensive support measures that have so far provided an effective buffer against the impact of the pandemic. The anticipated volume of borrowers seeking funding lines will inevitably drive up the price of credit offered by the traditional lenders which may, in turn, lead many borrowers to consider alternative lending sources such as P2P platforms.
As the government’s Covid-19 support initiatives are eventually withdrawn, significant numbers of businesses are likely to be left with varying degrees of additional debt burden, that will need to be serviced and ultimately repaid. For those businesses facing this reality, operating in sectors which are likely to experience a rapid return of customer demand, there will be immediate and significant need for working capital and general funding.
The period after Covid-19 therefore, presents a potential opportunity for those P2P platforms that are both well capitalised and robust, to grow market share. So how might P2P platforms approach this growth opportunity should it materialise as we predict? Whilst there will be a natural exuberance to initially prioritise top line growth platforms, our recommendation is that platforms take preparatory steps now to ensure that they have appropriate operational capacity and systems to digest increased borrower volumes.
Key factors to consider in advance of growing the borrower base
- Is there sufficient operational capacity/bandwidth within the platform to cope with the influx of enquiries?
- Do you have a robust risk management function in place?
- Have you considered the impact of higher volumes on the credit approval process?
- How do you maintain credit management discipline during this time?
- Do you need additional layers of enquiry and review in the underwriting process?
In order for P2P lending platforms to capitalise on the potential growth opportunities discussed in this article, the robustness of the onboarding and credit underwriting process will be critical components to achieving this. This will entail some P2P lending platforms having to review and update their underwriting processes to ensure that they have increased due diligence capabilities to prevent the onboarding of poor quality lends, given the expected volume of new borrower enquiries.
Quantuma’s financial advisory team has significant experience in providing support to traditional and alternative lenders, including the P2P sector, when it comes to appraising new and existing borrowers, where required.