Opportunity for P2P as banks cool on lending
Peer-to-peer lending platforms have an opportunity to attract new borrowers as high street banks tighten their lending.
Recent data has shown that banks are becoming more cautious with mortgage lending, business lending and consumer lending, due to the pressures of inflation and rising interest rates. This means that many consumer and business borrowers will be unable to receive financing from traditional lenders in the months ahead.
However, several P2P stakeholders have pointed out that P2P lending platforms have spent the pandemic fine-tuning their processes, and are now able to ramp up their operations in anticipation of higher borrower demand.
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“The overall market has a lot of room to grow, even without banks tightening now,” said Neil Faulkner, managing director of P2P ratings site 4th Way.
“I expect this will just help P2P lenders to win market share more quickly.
“Platforms on the whole have remained especially disciplined since the pandemic, so there’s really no need for them to tighten further themselves.”
Rob Pasco, chief executive of Plend, said that since his consumer lending platform launched in beta mode in mid-May, he has seen a lot of people turn to P2P after being turned down for a bank loan.
“We’ve seen a lot of people say ‘thanks for giving me a loan at 12 per cent because my bank wouldn’t give me one’,” he said.
“That’s been quite a common use case. We’re very close to one bank in particular and they have tightened their policies. No one is increasing lending.”
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“Banks are tightening their lending in response to the cost-of-living crisis and squeezed affordability,” added George Huntley, chief executive of The Money Platform.
“However, P2P lenders have proven themselves to be nimble, using new tools like open banking to boost lending in underserved areas and stealing a march on the banks for good quality customers left behind by traditional finance. I think data-savvy fintech players will continue to grow, even in these challenging times.”
According to the latest Bank of England statistics, banks reported a decrease in the availability of secured credit to households in the three months ending 31 May 2022, alongside rising default rates.
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The availability of secured credit is expected to fall again during the third quarter of this year. Meanwhile, the availability of unsecured credit to households increased slightly in the second quarter of the year, but is expected to fall by the end of the summer.
This has led some economists to warn of a looming credit crisis, echoing the 2007/2008 global financial crisis which fuelled the growth of P2P lending.
“P2P was born out of the global financial crisis and we continue to seek out investment opportunities for our investors at times when banks have difficulty doing so,” said Stuart Law, chief executive of Assetz Capital.
“This is primarily due to the leverage that banks use versus the unleveraged position typically used in P2P lending.”
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Ever since the global financial crisis, banks have been subject to capital adequacy requirements which ensure that they are not lending irresponsibly.
While P2P lenders are not subject to these requirements, their strict credit assessment processes are designed to ensure that only the most creditworthy borrowers receive lender funds.
“Responsible lending is paramount here,” said Rishi Zaveri, chief executive of Lendwise.
“The cost-of-living crisis, inflation and interest rate rises means that everyone has less money available to service their debt. Therefore, some tightening of lending may be the right thing to do with an ever-increasing focus on affordability.
“On the other hand, invariably the tightening means that they will cut back on lending, which has been a direction of travel for traditional banks for some time now, which originally gave rise to P2P players, so there is an opportunity for P2P consumer lenders to increase lending in a socially responsible manner.”
“P2P lenders can capitalise now that risk pricing is normalising,” adds Daniel Rajkumar, founder and managing director of Rebuildingsociety.
“We just need to be smart about which industries stand to prosper most during this phase of the economic cycle.”
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