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P2P in 2019: The highs and the lows

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2019 WAS a transformational year for peer-to-peer lending in more ways than one. This was the year that the P2P sector passed the £10bn lending barrier, despite having to contend with strict new regulations, and Brexit-related uncertainty.

While some platforms were unable to keep up with the rising standards of the industry at large; others flourished, hiring scores of new employees and reaching a series of milestones that kept the Peer2Peer Finance News writing team busy.

Looking back, it feels like this year the highs and the lows were more pronounced than ever before. For every Lendy-esque disaster, there was a new Innovative Finance ISA (IFISA) launch, or a regional expansion announcement.

Here are just a few of the ups and downs that marked 2019 as a year that won’t be forgotten…

THE HIGHS

  • IFISA inflows rocketed

After getting off to a slow start, in 2019 the IFISA was embraced as a viable asset class that can stand alongside stocks and shares and cash ISAs in any investment portfolio.

By September 2019, IFISA inflows had surged to more than £1bn. At least £600m of this was invested in the ‘big three’ platforms – RateSetter, Zopa and Funding Circle – although many other platforms benefited from IFISA fever. In May, Assetz Capital took £13m in IFISA investments – a record month for the platform, while Growth Street’s IFISA earned £1m in investments within six weeks of its June launch.

With more IFISA launches to come at the start of 2020, this bodes well for the long-term future of the tax wrapper.

  • Milestones were reached

2019 was the year of the milestone, as several platforms reported record lending volumes, secondary market trades and interest earned.

Property lender FutureBricks passed £1m in loans within its first year of operation; CrowdProperty’s loanbook reached £50m in October, while LandlordInvest flew past its £8m milestone in November.

Beyond the UK, Funding Circle reported that its global loanbook had hit $10bn (£8.3bn) in August; while European platform Mintos passed its €4bn (£3.3bn) marker in early December.

  • Expansion plans were announced

The ‘big three’ lenders offered a glimpse into the many possible futures of P2P lending as they each pursued their own expansion plans this year.

For Zopa, that meant pushing forward with its plans to launch a bank. In December, the Zopa Group finally raised enough equity to meet the capital adequacy requirements, paving the say for the official launch of the Zopa Bank in 2020. A third securitisation helped to cement Zopa’s reputation as an investor-friendly option.

At RateSetter, its years-long expansion plans came to fruition with the news that the platform was approaching profitability. The retail-focused lender rebranded at the start of the year, before launching a brand-new suite of products, and announcing plans to woo the difficult adviser market.

And Funding Circle reported a massive 55 per cent year-on-year rise in revenues at the end of March, along with plans to expand into the Canadian market. A £250m securitisation of UK loans followed in November, and – of course – the mega-lender passed its $10bn global lending milestone over the summer.

THE LOWS

  • Platform insolvencies

Without question, the lowest points of the year coincided with the collapse of Collateral, Lendy, FundingSecure, and MoneyThing.

Lendy’s wind-down arguably hit the hardest, and many investors are still waiting for their capital to be returned, seven months after the platform went into administration.

Unfortunately, this high-profile platform insolvency began a domino effect within the industry, as investors lost confidence in self-select platforms and began pulling their cash. By the time MoneyThing announced its plans to wind down in December, that loss of investor confidence was singled out as the cause of the closure; and not rising defaults or bad debt.

  • Regulation

The new Financial Conduct Authority (FCA) rules for P2P lending came into effect on 9 December, but it sometimes felt like the whole year was spent building up to them. A series of stringent new requirements left many platforms paying out hundreds of thousands of pounds as they rushed to get their back-office up to speed – an extra financial burden that could have come at the cost of expansions or new innovations.

Yet despite the grumbling, most industry insiders would now agree that the hard work has paid off. The regulations have been hailed as a “watershed moment” for P2P, adding legitimacy to a sector that is ready to grow.

  • Secondary market woes

With growth comes growing pains, and this year secondary market liquidity was a huge issue for investors. At Funding Circle, resale times rose to 124 days in October, prompting the platform to overhaul its secondary market terms in an effort to improve liquidity.

Concerns around the variable terms of secondary markets even led ex-City minster Lord Myners to table a parliamentary question about their regulation. While the government ultimately opted to leave secondary market oversight to the FCA, it was enough to remind P2P platforms that they are being watched.

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