P2P platforms confident they can compete in a negative rate environment

Peer-to-peer lending platforms are confident they can compete in a negative rate environment where banks would be able to reduce their borrowing rates.

According to The Times, the Bank of England has asked commercial lenders if they are prepared for interest rates to drop to 0.00001 per cent or into negative territory.

Lee Birkett, founder of JustUs, said that lending criteria from mainstream lenders is tightening so P2P lending will be a widely adopted alternative.

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“Banks will become more selective as expected,” he said.

“If people can get government money at next to nothing that’s great, but half of the country won’t qualify so alternative finance is needed.

“It’s frustrating that P2P platforms can’t access wholesale funding but the need for alternative finance is stronger than ever and P2P lending will reach all-time highs over the next few years, not just in the UK but globally.”

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Similarly, David Bradley-Ward, chief executive of Ablrate, said that with banks being very restrictive in who they lend to, P2P lending is vital, and with interest rates already at a record low, a further reduction wouldn’t make much difference.

“P2P started because the banks weren’t lending and that hasn’t changed, the banks are not really in the small- and medium-sized enterprise space, besides delivering government support schemes,” he said.

“And the banks weren’t lending much with an 80 per cent guarantee for the coronavirus business interruption loan scheme (CBILS).

“There’s plenty of room for P2P – our borrowers come to us because banks will take months to do anything.

“It could have potentially been a problem if bank rates were dropping from about 10 per cent to one per cent, but rates were already at 0.1 per cent.

“The reduced rate of borrowing doesn’t really affect P2P lending, but P2P platforms in the unsecured space that have not been approved for CBILS, will find it even harder to compete.”

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Daniel Rajkumar, managing director of Rebuildingsociety, added that a lower base rate could only prove a bigger incentive to attract people to P2P.

“People will still look at their options to invest in and P2P should be an attractive option for them, especially the platforms with a better reputation and which deliver good returns,” he said.

“However, negative interest rates would mean banks would have to introduce fees for people keeping cash in their current accounts, so we’d have to start charging lenders for holding their money in client accounts.

“We’d try to manage that as much as we can but may have to pass some costs onto customers.”