Peer to Business Lending
Alternative Finance Sector Report - October 2014 39
PEER TO BUSINESS LENDING
ALTERNATIVE FINANCE SECTOR REPORT
PUBLISHED
November 14
AUTHOR
Luke Jackson
Samantha Goins
STRENGTHS
Higher yields than bank deposits
Very low minimum investments
Easy and cheap to spread risk across a portfolio of
loans
Investor has direct control of where their money is
invested
Investment process is simple and easy
OPPORTUNITIES
Public awareness is currently low (15%), but
growing rapidly
Cutting out the banks appeals to many
There is support from government and the regulator
for ‘challenger’ companies in financial services
Specialising in a particular niche – green, ethical,
property, start-ups – appeals to many
Network effects of social media and on-line
businesses could grow the market rapidly
Viable, deep secondary markets could be created as
more investors engage with P2B, including
institutional investors
User interface developments can make it even easier
to invest
Appealing to intermediaries, such as advisers
THREATS
“Gold Rush” mentality leads to poor lending decisions
A platform failure could taint the whole sector
Ill-informed consumers could take on more risk than is
appropriate for them
Risk could be mis-priced by some of the reverse
auction methods platforms use
Heavy handed regulatory intervention could halt
growth of the sector
Incoming institutional investors could devise ways to
cherry pick the best deals and push retail investors
out of the picture
WEAKNESSES
No FSCS
Taxed on gross, not net profit (can’t offset tax against
defaulted loans)
Low levels of liquidity
Sector is still only a tiny fraction of total UK lending
activity
