15 June, 2016

Brexit: How Will an Exit Affect Peer to Peer Lending?

Business funding comparison service Capitalise.com’s MD, Paul Surtees, made this assertion in light of research conducted by the company around Brexit: ‘There have been countless forecasts on a future outside of the EU but we have uncovered that the threat alone is having an impact.’ he said.

The referendum taking place next week has already had a big effect on UK SME businesses with 40% claiming the referendum has already impacted their investment decisions and 15% professing they’ve postponed deals until after 23rd June – SMEs is the asset class most lent to by P2P investors.

If the threat alone is already impacting UK SME businesses, what actual effects could peer-to-peer investors and the lending platforms face should the impending break-up occur?

Brexit Impact on P2P Platforms

The UK banking sector has been much maligned in recent years, ever since the credit crisis of 2008. Innovative alternative investments such as peer-to-peer lending have sought to stem the borrowing void, while providing investors with risk-adjusted returns, uncorrelated to the stock market. Now, with the prospect of an ‘Out’ Brexit decision looming, UK P2P platforms will be put to the test should the economy take an adverse turn; economic downturn has been cited as the acid test for P2P lending, as the platforms recovery processes and ability to weather increased numbers of defaults due to economic conditions will be put under the spotlight.

Peer-to-peer giant, RateSetter, has just announced it’s moving more into SME lending in an effort to bolster its offering to investors seeking to lend to consumers, property and business borrowers across the platform. Not letting Brexit dampen the platform’s spirits, Rhydian Lewis had this to say about the upcoming referendum:

Economic stability is important for growing businesses to be able to plan ahead, and it seems stability is associated with remaining in the EU. But equally we thrive on disruption and change brings opportunity. Leaving the EU would likely further discombobulate the UK’s big banking conglomerates – perhaps that would lead to more competition in finance and help force positive change for savers, investors and borrowers.

P2P lending from conception was a disruptive force, introduced in order to reclaim a practice that has existed for centuries; lending and borrowing of credit. This time, it will be built upon transparency, unlike the banking system. Lewis’ balanced view echoes P2P’s disruptive nature but also the industry’s responsibilities to lenders and borrowers.


If Britain decide to exit on 23rd June, London’s financial services businesses will suffer a loss of business and protection against discrimination, according to a new report conducted by The City UK. Fundamentally, P2P platforms and other financial services companies will lose the capability of passporting their service across the 27 EU nations without seeking and complying with different regulations. This poses a potentially damaging scenario for P2P platforms that have adhered to strict regulations from the UK regulator (FCA).

Business Insider UK sheds greater light on the damage Brexit could have on the regulatory framework peer-to-peer lending platforms operate within:

  • Protection against discrimination. Passports guarantee incoming firms will be able to do business on the same terms as local ones, so long as they comply with local regulatory requirements. Without access to passports, UK-based firms (including subsidiaries of non-EU businesses which have set up offices in the UK), would face barriers in other EU countries that could impact their ability to operate.
  • Loss of business. Currently, UK firms can sell products across Europe through a cross-border service provision without a physical presence in other member states. The loss of passporting would mean this was no longer automatically possible.

Regulatory requirements

UK P2P platforms must still comply with country-specific regulations, so a “Brexit” could result in newly negotiated partnerships between peer-to-peer lending platforms in the UK and Europe more broadly. This could be important for the flow of working talent between countries as well as partnerships between industry players.

Brexit Impact on Borrowers and Investors

Loan repayment capabilities impacted

Britain will undoubtedly be shaken, socially perhaps more than anything, if a separation from one of the most diverse and affluent continents in the World does indeed occur. With peer-to-peer lending, investors lend to consumers (individuals) and businesses (SMEs and real estate). As trade and opportunity will be affected by Brexit, P2P borrowers will also most certainly be affected. Economic conditions influence a borrowers ability to repay its debt. If unemployment rates rise, consumers and businesses may struggle to repay their loans on time (arrears) or worse, the loans fall into default. If the latter occurs, the borrower may have their asset underwirting the loan recovered and liquidated to cover the repayment. If the loan is unsecured, the investor will more often have to bear the brunt of capital loss without recovery.

Fortunately, P2P has stood the test of time so far.

Current accumulative loan volume: £6.8bn

Current (all-time) P2P default rate: 3%

Platform underwriting

Jaidev Janardana, CEO of Zopa, said:

Most people agree that if we choose to leave the EU, it will create a period of uncertainty. This will negatively impact the economy and increase unemployment at least in the short to medium term. We will be vigilant to ensure that our underwriting is adjusted to reflect this. In the longer term, we believe that as a business, we are better off within Europe. We believe it will lead to a stronger economy, a deeper talent pool for companies likes us to hire from and better access to markets outside the UK.

Peer-to-peer lending platform views

RateSetter investors are firmly in favour of remaining “In” Europe. CEO Rhydian Lewis said:

A few months ago – before the leave and remain campaigns had started – we asked our investors for their views. 70% replied they’d prefer to remain in the EU.

MarketInvoice CEO, Anil Stocker, is another firm proponent of the “In” campaign. Stocker cited talent as the influencing factor:

I think a Brexit could really put a dampener on the growth of UK fintech in the long term. The skills subject is my biggest worry. We wouldn’t have been able to achieve what we have so far at MI without such a diverse array of talent. Being part of EU gives us access to much larger pool of talent. To have more barriers in place when it comes to hiring would really hinder our growth as a business. This simply would not have been possible if the UK were to exist outside the European Union.

Christian Faes, CEO of real estate lending platform, LendInvest, concurs with Anil Stocker:

As a fast-growing, technology-based business, hiring the best people to our team is an absolute priority to us. Right now, a large proportion of our 100-strong team is non-British. Whichever way the vote goes, our priority is that LendInvest remains a company where some of the best tech, marketing, sales and operations talent wants and is able to work, regardless of their country of origin.


A Brexit decision will, inevitably, impact the UK. There is no denying it. As for peer-to-peer lending, the evidence of its resilience in sustaining (potential) adverse economic conditions where default rates may rise will be plain to see in the coming year(s). One thing to note is, P2P lending is not correlated with the stock market, so while we are likely to see markets rise and fall, P2P should remain fairly stable.