The online independent – or peer-to-peer (P2P) – lending market has seen soaring growth figures this year. This week, commentators have been discussing the causes, effects and sustainability of the industry in the UK, China and the US.
UK: It can’t continue foreverJohn Ficenec in
The Telegraph weighs the positives for lenders and borrowers against the risk of a fledgling UK market. The country’s independent lending total rocketed from £75m in early 2010 to £3.15bn at the end of June this year.
Ficenec considers P2P a “nice idea” that can benefit both lenders and borrowers. However, he pits this against potential problems. “Demand from desperate investors scrabbling for returns is driving down the rates on offer from all asset classes,” he explains. “These are dangerous times, when risk can be horribly mispriced.”
He warns that companies should not be considered as bank accounts: “There is no guarantee that the money will be repaid,” he emphasises, as the Financial Services Compensation Scheme does not cover the loans.
Ficenec analyses two leading companies, Zopa and Ratesetter, which both claim a successful history of favourable returns for investors. Zopa’s greatest default rate was 5.54% during 2008.
But should this reoccur, Ficenec calculates that Zopa’s £9.6m safety fund would be insufficient to cover losses. He proposes that lenders exercise caution and invest no more than 5% of savings.
The logic of this burgeoning market, Ficenec concludes, relies on the market functioning normally, which it will not do forever.
The Telegraph analysis
China: Game-changing guidelinesLooking to the P2P industry’s far greater lending totals in China, Zhou Xiaoyan for
Beijing Review unpicks past pitfalls, oncoming guidelines and the future.
Xiaoyan details how the industry’s success has come hand-in-hand with failure. “The turnover of Chinese P2P lending platforms reached ¥329bn (£34bn) in 2014, up 268.83% year on year,” says Xiaoyan. “However, 287 P2P [lending] platforms either went bankrupt or had difficulty in withdrawing funds as a result of fraud in 2014, an increase of 282.67% from the previous year.”
By contrast, since the beginning of this year, 419 P2P lending platforms have run into operational difficulties, 7.5 times the number in the same period in 2014.
In response to the previously unregulated market, which Xiaoyan explains was in danger of “fraud, default risks, fund flight, illegal fundraising and an imperfect credit system”, Government guidelines were released on 18 July.
His analysis quotes Yi Huanhuan, Secretary for the IFC1000, an e-finance industry association: “The whole sector will experience painful transitions when detailed regulations are rolled out, but this is a necessary step."
Xiaoyan also draws from Ye Daqing, CEO of Rong360.com, who advances Huanhuan’s claim by predicting that guidelines will eliminate about 80% of the current platforms.
Nevertheless, none of the commentators Xiaoyan mentions argue that the guidelines will damage the market long term.
Beijing Review article
The US: Robbing the banksP2P lending in the US has also boomed – it is on track to almost double this year, says
Bloomberg Business reporter Matt Scully.
Scully describes how low interest rates helped lending reach $7.4bn last year. It has been predicted to rise 47% through 2020, which would claim 8.4% of total debt at that time.
He explains that LoanDepot.com LLC, the US's second-largest independent consumer lender, could “disrupt the disruptors”. He quotes Matt Burton, CEO of Orchard Platform Advisors, who says LoanDepot’s entry “is a big deal for all market participants”.
Like other independent lenders, Scully notes that LoanDepot seeks to profit “from a revival in demand for home-equity loans as housing prices rebound”.
The market as a whole could steal $11bn in annual profits from banks in the future, according to a Goldman Sachs report.
Bloomberg Business piece
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