Peer-to-peer (P2P) lenders are online platforms that match borrowers with investors, bypassing traditional lenders, which lend directly from their balance sheets. The world's first P2P lender, Zopa, was founded in the UK in 2005. Soon after, the first P2P lender launched in the US.
P2P lending was the top vertical in the UK fintech market for VC investment in 2015. BI Intelligence forecasts that P2P lenders in the UK will lend £16 billion ($23 billion) by 2020, up by a CAGR of 45% from £2.4 billion ($3.5 billion) in 2015.
P2P lending in the UK is split among property, business, and consumer lending. Property lending will make up the largest share of P2P activity in the UK in 2020, at 44%, followed by business lending at 31%, and consumer loans at 25%. Property lending volume will rise faster than consumer and business due to consumer attitudes toward risk and rising house prices. Although property lending could be at risk in the short term due to the UK's vote to leave the EU, we predict that it will recover in the long term and continue to grow faster than other segments.
Traditional lenders will soon cannibalize some P2P activity in the UK as they acquire the tools and technology to offer their own P2P platforms. Traditional lenders already account for the bulk of loan volume in the UK, and as traditional lenders start to offer their own solutions, P2P lenders' share of the market will decrease. In order to compete with traditional lenders, P2P lenders will have to scale significantly or find niche markets.
P2P lenders are attractive to investors and borrowers for a variety of reasons. For individual investors, there is an opportunity to earn higher returns than through a savings account using either an auction or auto-bidding model to choose investments. Meanwhile, borrowers get lent money faster through an easy-to-use online portal at about the same interest rate as a traditional lender would charge.
There are major differences between the UK and US P2P lending markets, which is important because recent trouble in the US and has led to more scrutiny in the UK.
Regulation is a key driver behind the growth of the UK P2P lending industry. There is a specific regulatory framework for P2P lenders in the UK that [...]