The big slowdown in P2P loans
That sound, and the graph above *, is the growth in online lending in the UK that has all but come to a halt. Overall, the Big Five have not grown significantly since around September 2015; the smaller players are pretty much where they were 18 months ago.
In the United States, the industry is in a modest state of decline. The Lending Club scandal has tainted the reputation of online lending, scaring off investors, and the heavy reliance on capital market funding has left the industry exposed to wider market movements.
We’ve seen one startup shut down, another go up for sale, and America’s biggest online lenders lay off employees in an attempt to cut costs.
UK startups have yet to see this level of direct carnage, and yet loan growth has stammered.
Competition for borrowers was one reason, according to Zopa CEO Jaidev Janardana, who said the company has not been able to make as many loans as its institutional and retail investors would like. A new institutional buyer came online in May and another will start buying loans in July, he said, but declined to name either.
Funding Circle’s explanation is that this is only a seasonal effect, while Ratesetter CEO Rhydian Lewis said in an emailed statement that the growth had been ‘underestimated’ for the benefit of the focus on full regulation of the Financial Conduct Authority. “In addition, we made the strategic decision in 2016 to focus more on investing in people and infrastructure rather than on growth,” he added, but said the loans under management of the business were up 20% this year.
This is the bullish story – investor demand is fine. Alternatively, you might consider taking Sam Griffiths at AltFi Data:
The permanent capital vehicles are almost fully deployed and have not raised new capital for 11 months with their stock prices at significant discounts to net asset value. Therefore, they no longer stimulate the growth of the origination of the sector.
Larger credit markets are offering better returns than 12 months ago, making the lending market less attractive to new institutional investors.
The securitization market has proven to be much more difficult to break through than expected with only one UK market securitization deal concluded to date.
The Innovative Finance ISA, which is supposed to bring a new wave of retail money to the industry, has yet to go live, with platforms having to wait for full FCA clearance before they can offer the tax-efficient wrapper to consumers. investors.
None of these problems go away quickly – 2016 is shaping up to be a year of calculation for online lending companies, which rely on new loans for commission income, on both sides of the Atlantic. The hype that reigned in the industry at the end of 2015 is gone, and a host of once-bottom-up startups could follow the same path.
Survivors can emerge stronger and gain credibility with investors. But they may also be forced to ditch peer-to-peer / market idealism along the way and find that while taking a break, banks have reduced their technological competitive advantage.
At Camp Alphaville in London on July 1, we’ll discuss all of this and see what the future holds for this still nascent industry – tickets here. We will be joined by Harsh Patel from Victory Park Capital, Rhydian Lewis from Ratesetter (an event sponsor) and Funding Circle’s Global Financial Markets Co-Head, Sachin Patel.
* An earlier version of this article mistakenly included a chart that aggregated the top four platforms rather than the top five.