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What happened to peer-to-peer lending?

3 August: Writing for ICAEW’s Financial Services Faculty, journalist Laura Miller considers the challenges to the peer-to-peer finance industry.

Peer-to-peer (P2P) lending – where individuals instead of institutions become lender-investors – emerged in the wake of the financial crisis. It was designed to provide loans to areas where traditional banks had retreated and investor returns in an ultra-low rate environment.

Flourishing fast and far – around £6bn of P2P loans were made in 2019 – has led to problems for this young sector. Recent high-profile failures look set to cost investors tens of millions of pounds, raising questions about the nature of the risks they are signing up to.


Peer-to-peer funder Lendy collapsed last year, leaving 9,000 P2P loan investors owed nearly £152m. Its administrators claim the founders channelled £6.8m offshore for their own benefit.

The company has become the poster child of how not to run a peer-to-peer platform, where investors replace financial institutions to loan money to other individuals or businesses, via P2P lending websites that connect borrowers directly to lender-investors.

“Lendy was a very poorly managed loan book. It didn’t have a diverse spread of borrowers and had a high concentration of risky property development loans,” says Nic Conner, research consultant at business finance broker Rangewell.

P2P in the age of coronavirus

Under the arguably late scrutiny of the regulator, hotshot entrepreneurial innovators are under pressure to mature quickly to prove the run of platform collapses were teething problems rather than systemic faults. These issues must now be weighed in the age of coronavirus, where company defaults are expected to spread widely across all sectors, in a true test of the robustness of P2P lending platforms and their compliance processes.

More P2P lenders are expected to fail under the strain, but for those that survive the incoming recession is an opportunity comparable to the global financial crisis.

Emerging collaborative, rather than rival, relationships with traditional banking offer potential ways of providing reinforcement during the stormy economic weather predicted. The winners will be those platforms that cement P2P lending within the mainstream of finance for investor-lenders and borrowers alike.

You can read the full insight at the Financial Services Faculty here.