UK Leading the Way on P2P Lending
Additional reporting by Matthew Howard
The University of Cambridge is making a reputation for itself in analysis of P2P lending and other “alternative finance”.
It's focus so far has really very much been on statistics that are of interest to the P2P lending companies, but unfortunately as yet it has produced little to help small investors like us to lend more safely and make more money.
For example, it has just produced a report called Moving Mainstream, which is largely about the comparative size of the P2P lending market in different European countries.
That's not particularly useful to us, but I thought it might be interesting to write about how much the UK is leading the way.
Rapid growth in the UK
The alternative finance market in the UK was:
£280 million in 2012.
£740 million in 2013.
£1.9 billion in 2014.
Extraordinary growth, mostly from peer-to-peer lending.
The report breaks peer-to-peer lending down into lending to consumers, lending to businesses, and, strangely, it separates invoice trading from lending to businesses. Collectively, this all makes up 90% of the alternative finance market.
Investors are avoiding high-risk investments
It's good to see that many other forms of much higher risk alternative finance are being left to eat P2P's lower-risk dust.
In particular, buying shares in startups, often called “equity crowdfunding” is tiny in comparison. Just £90 million was invested in it last year.
Investors are clearly not so interested in taking risks that are considerably in excess of the stock market and are using alternative finance to actually lower their risks.
Other countries are eating our dust too
The UK is far advanced of other European nations in terms of size, regulations and investor understanding.
While in the UK the market grew to £1.8 billion in 2014, the next biggest market, France, had a total of just £120 million. Germany came next with just £110 million. Most of the remaining 13 countries had under £20 million.
In total, the UK has 80% of the whole European market.
Investors in the UK have had longer to get used to the idea, since the first P2P lending company in the world, Zopa, started here 10 years ago.
The industry in the UK has already got specific financial regulations, and the government and HM Revenue & Customs are being very involved in advancing its cause. In particular, P2P ISAs – which will enable you to lend tax free – are coming soon.
In contrast, the report showed that many alternative finance companies were dissatisfied with the state of the regulations in their own countries.
The report also showed that the whole concept is either unknown or scary to many investors in other countries.