P2P Lending: Borrower Classes Explained
As we surpass £10 billion in cumulative lending in the peer-to-peer lending space, we thought we’d take a deeper look at the underlying sectors which are driving this growth. Broadly speaking, there are three sub-sectors in P2P lending, including consumer lending, business lending and property lending.
We take a closer look at these sub-sectors below.
P2P Consumer Lending
The pioneers of the UK P2P lending industry, Zopa, operates in the consumer lending space and originated the first consumer loan back in 2005. Currently, Zopa boasts 60,000 lenders on its platform, with retail investors representing just over half of the lending volume, with institutions representing the rest. Zopa’s success in the institutional space has led to key strategic partnerships with the likes of Metro Bank. While Zopa remains the largest platform in the sub-sector, the platform has been joined by RateSetter who has also seen great success. Zopa lent £688m in 2016, just ahead of RateSetter at £665m. Funding Secure and Lending Works also operate in the consumer lending sub-sector, albeit with much lower volumes.
The consumer lending sub-sector represents the largest of the three, at approximately 45% of the overall P2P market. Cumulatively, £4.6bn has been lent, with £1.4bn coming in 2016 alone. Consumer loans are granted for a variety of purposes, including car finance, home improvements, debt consolidation and weddings.
| Provider | Cumulative Total | 2016 Total |
|---|---|---|
| Zopa | £2,440,000,000 | £688,030,333 |
| RateSetter | £1,969,990,795 | £664,676,119 |
| Funding Secure | £140,327,383 | £53,070,000 |
| Lending Works | £76,094,555 | £20,594,114 |
| Total Consumer Lending | £4,626,412,733 | £1,426,370,566 |
| As % of Total P2P Lending | 46% | 44% |
An issue faced in this sub-sector surrounds loan origination. In fact, Zopa is currently closed to new retail investors due to lack of loan supply. To mitigate this issue, platforms have sought to strike up high-profile partnerships to increase public awareness and attract high quality borrowers. For example, Zopa has partnered with Unshackled, to provide mobile phone finance.
P2P Business Lending
Funding Circle joined the UK market in 2010 and has grown significantly since then to become the largest P2P platform in the market. Funding Circle operates in the business lending sub-sector and has over 25,000 small businesses borrowing through its platform. Funding Circle offers loans of between £5,000 and £1 million with terms of up to 5 years. The P2P platform has been particularly successful in attracting institutional money and has benefitted from £100m in lending from the British Business Bank, a UK Government-owned economic development bank established to increase the supply of credit to small and medium enterprises, as well as providing business advice services.
Business lending as a sub-sector has grown significantly with a large number of platforms entering the space. Cumulatively, we have seen £3.4bn lent, with £1.2bn coming in 2016. This represents approximately 35% of the overall P2P lending market. P2P lending has been particularly popular with manufacturing and engineering companies as well as transport, utilities, finance and retail.
| Provider | Cumulative Total | 2016 Total |
|---|---|---|
| Funding Circle | £2,474,351,993 | £823,189,665 |
| Assetz Capital | £295,600,452 | £107,956,684 |
| ThinCats | £242,540,000 | £62,872,800 |
| Folk2Folk | £162,021,804 | £50,860,762 |
| MoneyThing | £66,100,000 | £34,838,033 |
| Abundance Generation | £46,228,485 | £35,000,000 |
| ArchOver | £39,847,000 | £15,748,000 |
| Funding Knight | £31,485,000 | £2,555,417 |
| Ablrate | £23,959,581 | £12,018,741 |
| Crowdstacker | £17,365,614 | £15,128,247 |
| LendingCrowd | £13,674,236 | £4,529,390 |
| Rebuilding Society | £11,600,000 | £2,409,990 |
| Total Business Lending | £3,424,774,165 | £1,167,107,693 |
| As % of Total P2P Lending | 34% | 36% |
P2P Property Lending
Property lending accounts for the remaining 20% of the peer-to-peer lending market, with a number of platforms operating in this space. Cumulatively, they have lent £2.1bn, with £642m coming in 2016. LendInvest is currently the largest platform in the sub-sector, with almost £1bn lent cumulatively and having financed nearly 3,000 projects, with a focus on short-term financing.
There are a variety of financing models and products in property lending, ranging from short-term bridging finance to longer-term commercial and residential mortgages, and construction and development.
| Provider | Cumulative Total | 2016 Total |
|---|---|---|
| LendInvest | £999,318,540 | £355,261,579 |
| Wellesley & Co | £476,200,000 | £59,919,804 |
| Lendy | £323,198,007 | £163,490,767 |
| Octopus Choice | £124,560,000 | £49,360,000 |
| Proplend | £68,444,413 | £1,354,429 |
| Landbay | £47,310,000 | £11,466,515 |
| Relendex | £11,156,000 | £925,000 |
| Total Property Lending | £2,050,186,960 | £641,778,094 |
| As % of Total P2P Lending | 20% | 20% |
Conclusion
These three sub-sectors comprise the overall peer-to-peer lending UK market, but, as alluded, the range of reasons for borrowing within each sub-sector paints a varied and diverse picture. Lending to an unsecured consumer, financing a car purchase, versus an asset-backed property development illustrates the scale of lending opportunities. The opportunity to create a diverse P2P portfolio is now becoming easier; the emergence of support services like Orca, that provide an aggregation of platforms and independent research, is an exciting precursor for the different types of products we expect to see in the near future.
As mentioned at the start, peer-to-peer lending has surpassed the £10bn mark. Keep an eye on this asset class, it’s evolving fast and ripe for the taking.