Frank Wessely, partner at Quantuma, explains the growing strategic separation shaping the P2P market…
As the financial services sector looks beyond lockdown, all eyes are on the future of the peer-to-peer lending space. But that future is not just about survival of the fittest; it’s about an increasing strategic split between those platforms that are staying true to their traditional retail remit, and those that are setting their sights on more institutional ambitions.
The P2P sector has come a long way since Zopa first broke new ground back in 2005 when it became the UK’s first platform. But Zopa didn’t stop there. In June 2020, the platform was granted its full banking licence, paving the way for the launch of its new digital bank later this year, with an expanding portfolio of products set to include fixed-term savings accounts and credit cards.
Zopa is far from alone in pushing the original boundaries of the P2P sector. Other platforms have turned to M&A as an intuitive route to achieving their strategic growth ambitions and winning greater market share.
In August this year, Metro Bank snapped up ‘big three’ platform RateSetter, capitalising on a valuable opportunity to add muscle to its existing unsecured lending capabilities. Institutional money continues to pour into the sector. As the P2P sector comes of age, clear signs are emerging of a strategic split in the market.
As the more successful, ambitious platforms seek to grow and achieve scale, they are becoming increasingly corporate and institutional both in nature and in scope, distancing them from their smaller, more traditional peers. Make no mistake: this is a critical time for the P2P sector, and stakeholders across the board are watching like hawks to see how it shapes up going forward. The true extent of the impact of the lockdown will be impossible to gauge until well into next year, but one thing is already certain.
In this new business landscape, platforms that are targeting greater market share – and those developing a more institutional lender base – will need to manage four key areas of risk. One, they must continue to provide attractive products for their investors; two, they must carefully manage their operating costs and expenses in an environment where reduced loan activity has chipped away at income; three, they must effectively manage communication with borrowers in financial distress; and four, they must do everything they can to keep defaults to a minimum.
Platforms that can successfully maintain stability in their business, while tackling these four areas head on, will emerge from lockdown as those that are best positioned not just to cope, but to thrive, in the post-Covid landscape. Sector experts across the P2P spectrum Here at Quantuma, our work with P2P platforms spans our broad range of services.
Advisory, creditor services and corporate finance colleagues work together to support and advise platforms on a variety of strategic, operational and regulatory issues. We also work with platforms at every phase of development, from fledgling start-up businesses to more established players moving towards a more institutional identity.