The associate director of the Global Payments Advisory Service and author of a new report from Mercator Advisory Group, An Introduction to Peer-to-Peer Lending: A European Perspective, said the number of peer-to-peer lenders in the UK was likely to prompt one or more of them to take on too many risky loans and lose investors’ cash.
He said: “Further regulation is bound to come in on the consumer protection side in the near future. Regulation does not have to be onerous and I think that by creating the Peer-to-Peer Finance Association and self-regulating, the nascent industry has pushed off further regulation and really helped peer-to-peer lending take off here in the UK.
“However at some point, one or more of these peer-to-peer lenders is going to take on too many risky loans and go bankrupt which will damage the reputation and standing of the industry. Regulations tend to be reactive and that’s when I can see greater consumer protections coming in.”
Some peer-to-peer platforms give investors the opportunity to invest directly into a specific deal and offer some level of insight into the security underlying their investment, including both LendInvest and Funding Knight.
Others have investors invest across a portfolio of property and offer little visibility into the underlying securities – Wellesley & Co operates on this basis.
Hugo-Webb said: “It is increasingly tough for investors to keep track of all the emerging players and while there are a few comparison sites available, peer-to-peer lending is still so young that the models and structures may not be fully developed.
“While there may be more risk than traditional stock investing, people should not avoid peer-to-peer lending just because there is less information available.
“Investing should always be determined by one’s attitude towards risk and for investors willing to take on more risk than investing through peer-to-peer platforms is fine and more risk adverse investors can wait until the segment matures further.”
The report includes: an overview of peer-to-peer lending models and business propositions for the consumer and SME business lending segments; a review of the European peer-to-peer lending landscape for both consumer and SME business lending with profiles of key players in both segments; a map of the European peer-to-peer lending market identifying players targeting various countries; and an examination of peer-to-peer lending regulatory models and perceptions in Europe and elsewhere around the world.
