The UK Peer to Peer Finance Association (P2PFA) is no more. Once a leading industry voice the Association that once represented the biggest names in the P2P lending industry has made the decision to disband.
The news was revealed in a series of reports with the Times labeling the Association as “irrelevant.” The move was said to be due to “declining relevance.”
Current members of the P2PFA are said to have decamped to Innovate Finance – a public/private partnership that advocates on behalf of the entire UK Fintech sector.
The concept of peer to peer lending has always been a simple one. Many investors would provide the capital to enable small loans to consumers and businesses. The P2P platform created an online marketplace for the matching of investor and borrower thus removing the traditional bank-like middle man. Investors benefited from a higher rate of return while borrowers received the capital they needed without a trip to the corner bank. Initially, the sector blossomed – notwithstanding the occasional bump in the road.
In the beginning, the P2PFA was a vital catalyst for the growth of the online lending sector in the UK. The Association created a code of conduct thus setting industry standards that brought a sense of unanimity and quality to the P2P lending sector. As a self regulatory entity, investors and borrowers could depend on a level of standardization in P2P loans.
The P2PFA published quarterly lending volumes from their members providing a transparent viewpoint into sector growth. Over the years, some P2PFA members exited while others were added as the business adapted and platforms sought different paths to profitability. In May of 2019, fast-growing online lender MarketInvoice announced it would no longer be a member of the P2PFA as the business “evolved.”
The P2PFA at its inception was a leading voice for the fast emerging UK online lending industry. Founding Chairperson Christine Farnish established a highly credible presence for the industry, one that was not shy in expressing its opinion while directly engaging with both regulators and politicians. Farnish departed her role as Chair in early 2018, replaced by Paul Smee who inherited an industry in transition.
In recent months, several prominent platforms have announced they were stepping away from accepting retail money as the lure of institutional money was too strong.
New rules recently enacted by the UK Financial Conduct Authority may have played a role in platform transitions.
In December Landbay, a high profile buy-to-let marketplace, announced that its property crowdfunding platform would no longer serve as a peer to peer lender and would only accept institutional money. The cost of servicing smaller investors simply no longer made economic sense.
The same month Thincats, an SME peer to peer lender, made a similar statement. The Fintech said the number of loans funded by the P2P Platform had fallen significantly over the last two years and was no longer cost-effective.
At that time, the Thincats CEO stated:
“We have, therefore, made the decision to close the P2P Platform to new business and initiate a run-off process for existing investors. The controlled run-off of the P2P Platform will ensure that there is no impact on the returns or service levels that existing investors will receive. The ThinCats Group will continue to support the funding of mid-sized UK businesses through its institutional funding products.”
When news came out that several prominent P2P platforms were migrating away from providing access to retail investors, Crowdfund Insider contacted the P2PFA for a comment. Unfortunately, this publication did not receive a response, thus foreshadowing today’s report.
But transitioning away from retail money is just part of a fundamental shift in the UK P2P sector.
Zopa, the godfather of P2P lending in the UK, has long simplified its investing process to a more fund like approach. Retail investors no longer select individual loans but baskets of risk that provide immediate diversification. Zopa is also in the process of transitioning to a digital bank and thus will provide a broader basket of services to its users as it seeks to turn the profitability corner.
Over the years, other online lending platforms have added and removed services as the pressure to scale drives change.
In the end, P2P lending is in transition as companies seek to create sustainable models – one that can achieve profitability – a goal that few have attained so far. Servicing retail investors is harder to scale than big money – it also comes with greater (and more costly) compliance requirements.
While the decline of P2P lending may have been predictable, smaller investors will always have investment choices from the online lending sector. They just may have fewer options or ones that look more like traditional financial services offerings.