It may seem like yesterday but it’s been a year since the pandemic first took grip of the UK economy.
Here is how it has affected the peer-to-peer lending sector.
Prime Minister Boris Johnson told the nation on 16 March 2020 to stop non-essential contact and travel and the UK was in its first lockdown by 23 March.
This closed businesses, putting jobs and livelihoods at risk and also created new challenges and opportunities for P2P lending platforms.
The UK lockdown meant many businesses couldn’t open or operate.
The government got to work on a lending scheme that would support struggling firms.
This started with the coronavirus business interruption loans scheme (CBILS) that was launched on 23 March and was followed up with bounce back loans and the future fund.
CBILS initially focused on getting funds to businesses through the main high street banks but alternative lenders argued that they could do this faster.
However, they faced long waiting times to be approved for the scheme.
Eventually, Funding Circle became the first accredited lender under CBILS, followed by Assetz Capital, Folk2Folk and LendingCrowd.
Shift to institutional funding
One downside of the CBILS scheme was that retail money couldn’t be used to fund the loans.
This meant Funding Circle and LendingCrowd have temporarily stopped retail lending and used institutional partnerships to fund their CBILS lending.
Assetz Capital and Folk2Folk have continued with both.
One of the biggest challenges for P2P lending platforms was dealing with nervous investors wanting to withdraw funds.
RateSetter and Assetz Capital were among lenders who had to queue withdrawal requests due to increased demand.
Funding Circle’s secondary market is also currently closed.
Many P2P lenders adapted their credit criteria so they could continue lending but others found it more difficult to balance both withdrawal requests and maintaining liquidity to approve and fund loans.
Octopus Choice paused lending last year and has now decided to close.
Growth Street initiated a liquidity event on 17 March 2020, stopping investors from accessing invested funds.
The business lender said this was due to a larger than usual volume of money not being reinvested amid coronavirus uncertainty, making it harder to fund withdrawal requests.
It has since decided to close and has repaid all investors.
An economic downturn is often seen as a buying opportunity and it boosted merger and acquisition activity in the P2P sector.
It was announced in August 2020 that Metro Bank would acquire ‘big three’ P2P lender RateSetter and solely fund its new loans. Its whole book has since been purchased by Metro Bank and all investors are due to be repaid in April.
Lending Works also became an acquisition target.
It had paused new lending and closed its secondary market in March 2020 and announced it had been sold to alternative investment manager Intriva Capital in July.
New lending has resumed but investors are getting lower returns, with more diverted into Lending Works’ Shield provision fund.
The P2P sector’s tax wrapper had been attracting billions of pounds but the pandemic has limited the scope for new money this year.
Three of the largest players are not active this ISA season.
Funding Circle is still focused on CBILS, RateSetter is closed permanently to retail investors and Zopa is focusing on meeting demand from existing users.
Other platforms such as Assetz Capital and Folk2Folk have said they have received large inflows of IFISA money.
Restrictions in the UK are set to ease in the coming weeks and P2P platforms, as well as their investors and borrowers, will hope they can get back to normal, whatever that is.