Peer-to-peer lending accounted for more than £1.2bn of UK loans in 2014, with confidence growing among businesses and individuals in IT-enabled access to credit.
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Peer-to-peer lending platforms are an alternative to banks, with investors providing capital and online IT platforms matching lenders with borrowers. The IT platform quickly assesses the risk of loans and calculates fees, with borrowers avoiding the often high interest rates of bank lending.
According to the Peer-to-Peer Finance Association (P2PFA), the sector in the UK has doubled in size since the end of 2013, with more than £2.1bn lent in total. The organisation also revealed the number of lenders increased by a third and borrowers by 90%.
P2PFA chair Christine Farnish said the figures are evidence of the impact that peer-to-peer lending is having in the sector.
“Last year showed continued and solid growth in the consumer market and a significant increase in lending flow to businesses," she said. "Invoice finance and peer-to-peer finance within the property market are also growing.”
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Farnish added that government backing will boost the sector over the next 12 months.
“This year will be another important year for our industry. The government has agreed that peer-to-peer lending should become part of the ISA tax-wrapper, a decision we warmly welcome," she said.
"Our strong view is that government should establish a new ‘Lending ISA’ category to enable consumers to understand the difference between peer-to-peer lending, cash savings and stocks and shares investments.”
In 2005 the first peer-to-peer lending platform Zopa was launched.
There are now 114,697 people lending through peer-to-peer networks and just under 140,000 borrowing through them, according to the P2PFA.
Peer-to-peer lending platforms are an example of how technology companies are increasingly threatening the businesses of banks. There is a raft of new banks emerging that are harnessing new technology to take on traditional banks.
The future finance sector looks set to feature IT-enabled businesses that focus on certain finance products, which will break up the dominance of large banks that have grown in size through offering end-to-end finance services to consumers.