Peer to peer (P2P) lending is a simple concept with a growing international appeal, especially in the UK, the US and China.
Essentially it is the practice of lending money to unrelated individuals, or “peers”, through web-based platforms. This online process cuts out the costs and inefficiencies associated with traditional financial institutions and provides a win/win situation as both savers and borrowers can access much better rates.
Amidst a groundswell of publicity, many commentators see 2014 as the year for P2P in the UK. Firstly the Chancellor announced his intention to include P2P within the lauded NISAs and then FCA regulation of the sector, which came into effect on 1 April, added another stamp of approval.
The sector is also being driven forward by record low interest rates and technological advances, known as FinTech. An increasingly viable source of funding for entrepreneurs and start-ups, it provides an attractive alternative for owner-managers as the failure rate for bank loan applications soars.
However, while the recent media attention will no doubt introduce P2P to new audiences, RateSetter CEO, Rhydian Lewis, believes that, whilst regulation is a solid foundation, more needs to be done by P2P platforms to earn consumer trust and ensure that the industry grows as a credible challenger to traditional financial institutions.
An intelligent choice for smart savers
RateSetter is a pioneer with a ground-breaking proposition that lets savers and borrowers set the interest rates they want via a safe and fair online platform.
A young, entrepreneurial company established in October 2010, RateSetter recently hit the £200m money matched milestone. The business grew at 219% in 2013 (according to NESTA) compared to overall sector growth of 109%, making it the fastest growing major P2P company in the UK.
At a time when UK P2P lending has exceeded the £1bn mark, Rhydian believes it is now up to the P2P players themselves to bolster consumer confidence by putting adequate measures in place to prevent savers from losing money.
RateSetter’s Provision Fund already addresses this issue, ensuring savers are protected against borrower defaults. Their fund remains the biggest by a large margin, currently standing at £3.7m and growing at over 16% on average per month last year. The fund currently covers anticipated bad debt by 180% and is expected to reach 200% in 2014.
The key point here is that, if P2P is to become a mainstream alternative to banks, P2P providers can’t simply rely on regulation and must take steps to protect their lenders.
To date RateSetter is the only P2P platform of scale that can claim 100% compensation with not one of their savers, which number over 11,000, losing a single penny.
This year has provided the conditions that open up a massive opportunity for the P2P industry. It is essential that savers do their research before entering the sector, but there seems little doubt that P2P represents the future of the savings and loans market – no banks, low fees and market-beating rates.