Last week, I was approached by Jade Preston who wanted to contribute with a post on the P2P lending scene in 2017. As I have been writing a bit about P2P lending already, I decided that I would go ahead and give this whole ‘contributed posting’ a shot 🙂
The article below has been contributed by Jade Preston, who is a finance adviser with a background in marketing and journalism. In her free time, she writes articles on personal finance and economics.
Peer-to-peer (P2P) lending will explode in 2017. This is according to Peer2Peer Finance News, which based its forecast on research made by independent P2P analysis firm 4th Way. The study noted that this growth, which could reach as much as 50 percent, is due to the Innovative Finance ISA (IFISA), five of which have already been launched, although 16 are predicted to be released before the year ends.
This report is echoed in the “Market and Research” report, which predicts that the global P2P lending market will grow by 53.06% from 2016 to 2020. The 4th Way analysis, however, also stated that some platforms might close down. Even so, shutting down these firms may not necessarily be a bad thing, according to lending specialist BondMason. As stated in an article published on Private Equity Wire, this could turn out well in the end, with the quality of the services in the P2P market improving following the closing of the “weaker” platforms.
Stephen Findlay, the CEO of BondMason, said, “The direct lending industry continues to grow at an impressive rate. What we are seeing right now, and what we believe to be the reason for the slow-down, is the start of a flight to quality whereby better lending platforms outperform and evolve faster and more sustainably than weaker ones.”
He also stated that the competition between the direct lenders and the other lending agencies, including banks, could actually raise industry standards, which will then result in better opportunities for investors and business owners. However, Findlay also stated that these changes would not happen overnight. Instead, these could happen within one or two years.
Findlay’s sentiments are echoed by David Galland, who said in an article on Forbes that P2P lending is gaining momentum among investors due to the fact that this is less volatile and yields higher returns compared to other fixed-yield investments. He also stated that it is very easy for investors to enter P2P lending, with less than a day needed to enter the market. The return in investment is pretty quick as well, as payments can be expected within 30 days after an investor gives money, which can be as low as $25 per loan.
An article written by Diogo Costa on TechCo said that the arrival of fintech has also contributed to the growth of P2P lending, which is now being considered by some people as an alternative to banking. The author commented that this could actually work in favor of customers, because it can trigger changes within the traditional banking system, which currently follows a high-interest, low-return scheme to its investors. These statements are in contrast to the warning given by RSA in 2016, saying that P2P is in danger of disappearing from the market because the industry is inundated with various scandals. It also stated that P2P lending had reached its peak in 2016.
Risks in P2P lending
Certainly, peer-to-peer lending has its own share of risks. However, FXCM stated in an article that money management is a matter of juggling risk with the potential for profit. Given future uncertainty, there is no solid guarantee that any risk undertaken by an investor will result in profit. Nonetheless, the potential for loss can be mitigated by carefully studying the industry.
According to Damien Fahy, a finance expert who writes for The Guardian, it can be hard to determine the level of risk in P2P, since the investor is reliant on the in-house risk assessment made by the firm itself. As such, he advised that those who are considering P2P lending should go to a reputable, established firm, instead of a company that seemingly sprouted up overnight.
With that being said, Findlay still expressed his belief that P2P is here to stay. He said, “Direct lending is here for the long haul, and we expect it to evolve and change form over the coming years – becoming an ever-increasing component of asset allocations for retail and institutional investors.”
Do you think that the P2P lending industry will boom as forecasted, or do you have any concerns about this? Let me know your thoughts by giving a comment below.