P2P firms looking to grow need to raise rates or attract HNWs, says 4th Way
Peer-to-peer lending platforms looking to grow will either need to secure more funding from high-net-worth investors and institutions, or increase their rates, according to 4th Way’s Neil Faulkner.
The Bank of England’s successive rate hikes over the last 18 months have boosted bank savings rates, meaning that consumers can earn up to six per cent without taking the risk of investing.
The head of the P2P research and ratings firm said that he has talked to several platforms in recent weeks about how they are dealing with this challenge.
“P2P lending providers have not been willing or able to raise investor rates at anything like the pace that savings rates have gone up,” Faulkner said. “It is normal that the gap should narrow in an environment like this, but in some cases it has made it harder for platforms to increase the sizes of their loan books and to bring in new investors at the speeds they were achieving 12 to 18 months ago.
“Even the lowest-risk platforms need to acknowledge that – everything else being equal – you can’t really beat capital preservation from savings accounts with FSCS protection.”
Faulkner said that platforms have two choices if they are looking to grow in the current climate.
“They can increase their arrangements with high-net-worth investors and institutions to reward them for taking up additional slack from a more fickle retail investor base,” he said. “Many have already done this in recent years and this has proved valuable.
“Alternatively, they need to ensure that they’re offering enough of an edge to investors, which in some cases means endeavouring to raise lending rates further and faster, if they are able to do so.”
Faulkner also made the point that, with inflation having just dipped, most platforms will once again be on course to beat inflation.
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“P2P lending has beaten inflation every year except in 2022 since it started in 2005, whereas savings accounts have lost most years and the stock market has lost to inflation one-third of the time,” he added. “Savers and investors can’t expect to beat inflation all the time, but investments that almost always beat inflation has been a highly welcome addition to our investment portfolios.”
Keep an eye out for the August issue of Peer2Peer Finance News for further analysis of how P2P platforms are responding to the higher-interest-rate environment.
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