The UK Peer to Peer Finance Association (P2PFA) has released a commissioned study on the economics of the peer to peer lending market in the UK. The independent assessment, provided by the economic consulting firm of Oxera, analysed the risks, costs and benefits of peer-to-peer lending and provided an objective account of how P2P business models work. The study focused specifically on the eight-member platforms of the P2PFA – each held to high standards of transparency and operation – which collectively comprise over seventy-five per cent of the UK market.
According to the report;
1. P2P lending has created additional competition and choice in the market for loans and investment;
2. P2P lending provides new options for retail investors, opening up access to risk-and-return from an asset class of consumer and business loans with net returns of between 4% & 8%;
3. P2PFA Members as of January 2016P2P lending platforms conduct credit-risk assessments using industry best practice and deliver outcomes consistent with those of traditional lenders;
4. P2P platforms are incentivised to manage credit risk well because borrower defaults result in the loss of ongoing servicing fees (which comprise a significant proportion of a platform’s income);
5. The P2PFA member platforms provide a level of transparency which empowers investors to assess performance against expectations;
6. P2P lending does not create systemic risk, and platforms are well-placed to weather a downturn in the credit cycle – borrower defaults would need to increase at least threefold to reduce average interest rates to investors below zero; and
The current regulatory framework is proportionate and targeted, though opportunities to strengthen the regime exist in some areas.
Most investors have a good understanding of the associated risk
As with any large bureaucratic agency, there is a diversity of opinions as to what needs to be changed and what does not. The P2PFA is being proactive in its positioning by providing an independent “evidence-based report” to buttress its position. The 76-page report, embedded below, also includes an assessment of potential market failures – derived in part from questions raised by Andrew Tyrie MP, Chairman of the Treasury Committee. Now the question remains as to what, exactly, the FCA will do with this report.