What is Peer-to-Peer Lending?


What is Peer-to-Peer Lending?

The Headlines:

Born 2005 UK

Invested 2015: £2.3bn

UK Investors Expected by 2020: 2.7m

No. UK P2P Platforms currently: 58 (approximately)

(Figures supplied by Nesta 2016 and Morgan Stanley)

Simply put, Peer-to-Peer Lending (P2P) is the bringing together of people to lend and borrow money without the need for a bank.

Investors lend to individuals, small businesses and property. An investor, or lender as they are often called, will receive a reasonable interest rate (circa 5% per annum average) during the loan term, and their principal investment back at the end of the term as well.

Investors benefit, borrowers benefit

From a borrower's perspective, it is a rare opportunity to receive a quick, straightforward loan for whatever reason, providing they can repay the debt.

From an investor's perspective, it is a rare opportunity to see their cash earn significantly higher interest rates than traditional modes of investing, including high street banks. They have control over their investment, watching as it positively affects the borrower, a transparency not seen in many other asset classes.

Where did it all start?

Peer-to-peer lending, or P2P, was created in the UK in 2005 by P2P platform giant, Zopa. Zopa saw an opportunity to affect change in the investment world and disrupt the stagnant and unjust banking system which wasn't fulfilling its purpose any longer.

They created a system that allows lenders and borrowers to profit, equally, with no hidden agenda, no skimming off the top or pulling the wool, as has been endemic in the investment sphere for decades.

A Growing Industry

The industry of peer-to-peer lending is on the rise, expanding rapidly, particularly in the UK. A young industry, at only 10 years old, there are already over 50 P2P Lenders registered in the UK appealing to retail, high-net-worth and institutional investors and loaning out to individuals and businesses.

Popular With the Masses

Peer-to-peer lending grew exponentially between 2013-2015 from £480m to £2.4bn consumer and business loans.

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Investors and borrowers clearly see the mutual benefits of peer-to-peer lending, demonstrated in one half of the market, P2P Business Lending. This segment of the P2P market has almost doubled in the last year from a £749m market in 2014 to £1.49bn in 2015, and equating to two-thirds of the 2015 market (62%).

P2P Business Lending is divided into property development & real estate mortgages and SME business lending. Property/real estate accounted for 41% of business loans in 2015 and almost 10,000 UK SMEs received funding from peer-to-peer investors.

Peer-to-peer consumer lending grew 66% from 2014 to 2015, resulting in a £908m market segment lending to approximately 213,000 UK individuals. The average loan size was £6,583. P2P consumer lending equated to 38% of the 2015 peer-to-peer lending market.