Saturday 12 September will mark the four-year anniversary of Peer2Peer Finance News – the first ever magazine and website dedicated to covering the UK’s peer-to-peer lending news.
A lot has changed since September 2016. P2P lending platforms have launched and collapsed; hundreds of thousands of borrowers have secured billions of pounds in funding; and regulations have been changed in recognition of the growing contribution P2P lending makes to the financial services sector.
But four events in particular truly stand out for us.
The arrival of the IFISA
Although the Innovative Finance ISA (IFISA) officially launched in April 2016, it was not exactly met with a stampede of investors. This was likely due to the long delays in authorising P2P lending platforms as ISA managers – an issue that we covered extensively at the time.
In the 2016/2017 tax year, just 5,000 IFISA accounts were opened. However, once the authorisations started trickling through, the product became more popular. In the 2017/18 tax year, there were more than 31,000 IFISA accounts.
Since then, IFISAs have been a booming business for P2P lending platforms, with upwards of £1bn now invested in the tax wrappers. Proof that patience pays off, and good investment products will ultimately sell themselves.
The ‘big three’ diverge
When we started covering UK P2P lending, there was no doubt which platforms made up the ‘big three’. Funding Circle, Zopa and RateSetter had by far the largest market share, as well as a long track record and thousands of happy customers.
All three of these platforms started out with a view to bring retail lenders and borrowers together and bypassing the banks.
But over the past four years, their paths have diverged quite significantly.
Last month, RateSetter was acquired by Metro Bank, in a deal which is set to be worth up to £12m over the next three years.
Meanwhile, Funding Circle made history by becoming the first P2P platform to launch on the London Stock Exchange. Its initial public offering (IPO) closed in September 2018, with an opening share value of 440p. By the end of the first day, shares had dropped to 335p and the company’s share price has since dropped as low as 44p – although it has rallied to approximately 90p per share in recent months.
In perhaps the most unexpected move of all, the world’s first ever retail-focused P2P lending platform – Zopa – announced that it was launching its own bank. Zopa Bank received its UK banking license in June of this year, and it has already started offering chart-topping savings rates and a suite of credit cards.
Lendy was not the first alternative lending platform to go into administration, but it was certainly the highest-profile collapse – and the fallout continues to this day. Lendy went into administration in June 2019, and since then the company’s founders have had their assets frozen, while angry investors have created a Lendy Action Group to fight for a fair settlement on their missing funds.
At the time that it went under, Lendy’s loanbook was valued at approximately £152m – yet less than £20m has been released to date, and the administration process has been extended by another three years.
Lendy’s controversial collapse has served as an expensive lesson in the importance of due diligence, diversification and risk awareness in the P2P lending landscape. In fact, regulatory changes mean that it would now be impossible for an identical situation to occur again. Of course, that is no comfort to the many investors who are still fighting to recoup their money and get to the bottom of Lendy’s increasingly confusing business model.
Its fair to say that the coronavirus pandemic has not been a net good for any sector of the economy. But for P2P lending platforms, the introduction of the government-backed coronavirus business interruption loan scheme (CBILS) represented a chink of light.
Initially open only to high street banks, Peer2Peer Finance News was among a chorus of voices calling for the government to back our industry and allow alternative lenders to offer these business-saving loans. The pressure eventually paid off when Funding Circle and Assetz Capital became the first two P2P lending platforms to win CBILS authorisation. Soon, LendingCrowd and Folk2Folk joined the scheme, along with marketplace lenders ThinCats and MarketFinance, and alternative lenders such as Nucleus Commercial Finance and iwoca.
To date, the scheme has provided almost £14bn in funding to more than 60,000 businesses across the UK, and P2P lenders have played a huge role in this CBILS success. By July, Funding Circle had approved more than £470m in CBILS loans, proving that alternative lenders have the distribution and credit checking facilities to deliver much-needed funding to the business community.
With the CBILS scheme set to end on 30 September, there has been much speculation about where this will leave authorised platforms. A permanent shift towards an institutional investment model seems likely for some lenders, while there have been suggestions that CBILS authorisation could pave the way for more platforms to gain access to government-backed loan schemes such as the Enterprise Finance Guarantee (EFG) scheme.
Could this mean that P2P lending is finally being accepted into the mainstream? We’ll probably have the answer to that question in another four years’ time.