Peer-to-peer lending comes of age in the UK
Dec 14, 2012 (Datamonitor via COMTEX) --
The government's decision to channel lending to small business through peer-to-peer providers demonstrates the growing credibility of this sector. With banks continuing to restrict their lending to the lowest risk borrowers, peer-to-peer and other alternative lenders will expand to meet the demand from small business and other underserved markets.
The government has just given an official vote of confidence to the peer-to-peer (P2P) lending sector. The announcement that it will channel GBP55m worth of funding to small businesses through P2P providers will give added impetus to a sector that is already enjoying remarkable rates of growth.
P2P lending is on the march. Zopa, the best known such provider, has expanded massively over the last 12 months. The total amount it has lent has grown from GBP180m at the start of 2012 to more than GBP250m by November.
Several factors will ensure continued strong growth in P2P lending. Both lenders and borrowers can benefit from more attractive rates than the banks are offering, and the co-operative ethos chimes well with consumers looking to avoid banks that have been associated with various mis-selling and other scandals.
In addition, banks are still in the early stages of a painful deleveraging process that will significantly limit their lending capacity for many years. In contrast, P2P lenders are succeeding in attracting significant inflows from both individuals and institutional investors that will finance further significant expansion in lending.
None of this is to imply that P2P lenders will threaten the market dominance of the banks (according to Datamonitor's 2012 Financial Services Consumer Insight Survey, 54% of outstanding personal loans were arranged through banks, with most of the rest arranged through building societies and car dealerships). However, both they and other alternative funding sources will grow in response to the retreat of the banks from moderate and higher risk lending. Increasing diversity will become the hallmark of the lending markets over the next decade.
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