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Technology platforms that instigate lending to businesses and consumers look set to heap more competition on the banking sector as Financial Conduct Authority (FCA) figures reveal more than 100 businesses have applied for peer-to-peer (P2P) lending authorisation.
P2P 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, meaning borrowers can avoid the high interest rates of bank lending.
According to figures obtained from the FCA by compliance consultancy Bovill, which were published by the Financial Times, 114 companies have applied to become fully authorised P2P lenders. A total of 174 have interim permission to operate.
This represents a huge increase from figures published by the regulator in February 2015. In a regulatory review published in February, the FCA said: “The number of firms operating in this sector, or seeking to enter it, increased from 50 in April 2014 to 56 by the end of 2014.”
Gillian Roche-Saunders, head of venture finance at Bovill, told the Financial Times: “Everyone feels [like] it’s a bit of a land grab now there’s more certainty about the regulatory regime. There are an awful lot of entrants to the market, including many niche players.”
In 2005, the first peer-to-peer lending platform Zopa was launched.
Earlier this year, the University of Cambridge said P2P lending in Europe reached €3bn in 2014 and could hit €7bn in 2015.
A study by the Centre for Alternative Finance at University of Cambridge’s Judge Business School and professional services organisation EY found that the UK accounted for 74.3% of total lending using these alternative platforms. The research report said alternative finance platforms are close to becoming mainstream, particularly in countries such as the UK.
According to the Peer-to-Peer Finance Association (P2PFA), P2P 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. In February 2015, it said P2P lending in the UK had doubled in size since the end of 2013, with more than £2.1bn lent in total. It also revealed the number of borrowers increased by 90% and lenders by a third.
One UK peer-to-peer lending platform is MarketInvoice. The company buys invoices from small businesses through funds provided by investors. These investors receive an agreed percentage of commission when the loan is made and get the money back when it is repaid.
The platform carries out risk checks on a business with an invoice and then offers creditors the chance to invest in the invoice based on the assessment. It can have funds from an invoice available to a business within 24 hours.
These platforms are backed at the highest level in the UK. Government-owned British Business Bank, which was set up in 2012 to make more credit available to small to medium-sized enterprises, uses several peer-to-peer lending platforms, including Zopa, Funding Circle, Ratesetter and MarketInvoice.
Gareth Lodge, financial services analyst at Celent, said there are many P2P platforms, but most are very small and will have little impact on banks, “but companies like Zopa and Funding Circle are beginning to make a dent”.
Read more about alternative finance firms
- 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.
- Cloud-based UK peer-to-peer lending platform MarketInvoice is moving to a Microsoft Azure-based platform as a service (PaaS) to cope with demand.
- Internet giants will not try to replace banks, but will disrupt the sector through services that take consumers away from traditional banks, says Forrester.