Friday 29 Mar 2024
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PEER-TO-PEER (P2P) investments will grow at least twentyfold in the next few years as it becomes the alternative investment of choice in a down economy, predicts John Goodall, CEO of UK-based Landbay Partners Ltd.

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Goodall, co-founder of the niche company that focuses on funding buy-to-let property mortgages, says about £1.5 billion (RM9.6 billion) has been pumped into the alternative investment platform, but the amount is set to grow exponentially to £25 billion in the next four years.

“In the UK, we are seeing it grow very rapidly … we are expecting at least 20 times the growth,” he tells Money + Wealth in an email interview.  Goodall will be speaking at the World Capital Markets Symposium 2015 organised by the Securities Commission Malaysia on Sept 3 and 4.

PricewaterhouseCoopers, in its research report released in February, estimates that the P2P market in the US will grow to US$150 billion (RM616.1 billion) by 2025.

Borrowers have been flocking to these online platforms, with the hope of landing new credit to finance their ventures, since the implementation of the Basel III capital adequacy requirements that saw banks tighten their lending to all but their largest clients in the aftermath of the 2008 global financial crisis.

Investors, meanwhile, have started to look at alternative investments in response to the lacklustre performance of fixed-income securities and in search of better returns than what equities can provide at the moment. As alternative investment portfolios have little to no correlation to other assets, they have provided the much-needed diversification.

“[In the UK] after the global financial crisis, consumer trust in traditional financial institutions such as banks began to wane. Base rates were slashed — for the past six years, bank base rates (BBR) in the UK have been at an all-time low of 0.5% — and consumers started to look for alternative ways to earn interest on their savings,” says Goodall.

“The volatile nature of stocks was highlighted and P2P established itself as a mid-way point between bank savings and volatile investments. Furthermore, banks have dramatically cut back on lending and borrowers needed alternative sources of funding.”

P2P lending, otherwise known as lend-to-save, began in the UK with launch of Zopa in 2005. Over the years, new platforms have emerged, such as Funding Circle in the UK and Lending Club and Prosper in the US. 

In March, Zopa reportedly disbursed £750 million in loans from more than 58,000 investors to 107,000 individual borrowers in the UK. The take-up of loans via P2P lending platforms is largely credited to the superior returns and efficiency of these platforms, which are driven by state-of-the-art IT systems. 

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The emerging industry has begun to make its presence felt. In the UK, the various P2P platforms have come together to create an umbrella trade body — the Peer-to-Peer Finance Association (P2PFA) — to assist the government in shaping the regulations which they will operate under. 

The platforms are currently regulated by the Financial Conduct Authority (FCA), which means the loans are protected should the platforms collapse. However, lenders will not benefit from the Financial Services Compensation guarantee of up to £85,000 per person.

Given that industrial-scale online financial matchmakers are now regulated, the UK government recently introduced the “pension freedom” scheme, which allows individuals to invest funds from their pension pots. 

“[The new scheme] led to an uptick in funds deposited in P2P lending accounts. Another Treasury decision is set to have an even higher impact on the growth of UK-based P2P platforms in 2016 — the introduction of the Innovative Finance Individual Savings Account,” says Goodall.

“Individuals will be able to include up to £15,240 of their P2P investments in a tax-free Individual Saving Account wrapper,” he adds.

 

This story first appeared in our new digital publication Wealth, a section within the new digitaledge Weekly. Click here to subscribe to our digital products for the next three months. 

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