Peer-to-peer lenders use digital platforms to link investors and borrowers, a contrast to traditional banks who lend out deposits of customers. It is an increasingly popular way of funding business ideas, personal loans, and projects through small contributions from people, and financial market. Over the last few years, P2P lending has grown exponentially with cumulative lending reaching about £3.7 billion October last 2015 in the UK. As the UK’s lending market continues to grow, one important question for most lenders and borrowers is; what does the future hold for the UK lending market?
Currently, the UK is the leading market in Europe, accounting for about 85 percent of the European market. In the next few years, P2P sector will grow fast, forcing some banks to change their ways. But make no mistake; banks are now finding ways to make money from P2P platforms such as providing finance, entering into partnerships or buying up loan books.
In the UK, P2P lending is still in its early years and with only about 10 years old, a lot has to be done. The emergence of more advanced P2P lending websites such as Funding Circle, Ratesetter, and Zopa are disrupting the business lending and borrowing landscape and are providing savers many possibilities and better fees.
According to Research and Markets, by 2018 P2P lending in the UK might be worth more than £5 billion. In the report, it is highlighted that by 2020, it will be common for individuals and businesses to connect with lenders through P2P websites and market wide platforms.
In a new report, BI Intelligence predicts that UK P2P lending will grow at a 45 percent five-year compound annual growth rate, to reach $23 billion by 2020. The report also forecasts consumer, property, and business P2P lending volume in the UK, factors driving the growth, and how some unique features of the market are helping the country develop its P2P lending industry.
In the future, we expect to see P2P property lending making up the biggest share in 2020 in the UK, followed closely by business lending and consumer loans. Also, traditional lenders are expected to reclaim some P2P lending volume by acquiring or building the technologies that are proving successful.
Recently, FCA said it has concerns about P2P lending market. Initially, in tackling ‘market integrity’ questions, FCA introduced rules for the regulation of peer-to-peer platforms back in March 2014. Currently, the regulatory authority is reviewing current regulatory arrangements.
Following a recent two-month consultation period, covering investment based and loans based P2P crowdfunding platforms, FCA is considering whether financial promotions, prudential standards, and due diligence are still suitable for the way the market has developed. The FCA said it is difficult for investors to know the returns and risks, marketing materials are sometimes misleading and unclear, and some companies do not manage conflicts and risks properly. Therefore, before 2020, FCA is likely to make new rules to address the problems in the P2P lending. We expect to see firmer rules on wind-down plans for peer-to-peer lenders and higher standards of disclosure by all crowdfunders.