5 June, 2018

UK P2P Platforms: Where is the Global Ambition?

UK P2P Platforms: Where is the Global Ambition?

In some respects, the alternative lending market in the Baltic region is strides ahead of the UK market. Platforms such as Bondora in Estonia and Mintos in Latvia have adopted a global strategy of targeting investors and borrowers. Operating in unregulated local markets might have helped this cross-border strategy, but it’s more likely that a need to expand into larger pools of capital has stimulated this approach.  

On the face of it, there appears to be little ambitions for the UK P2P platforms (Funding Circle, the obvious exception) to target global markets.

Is it possible for EU investors to invest in UK P2P platforms?

The party line at the platforms is often ‘no’ but if you dig beneath the surface they often will accept investors from abroad. However, the process is not smooth with an obvious language and currency barrier.

We asked a number of the platforms what their requirements are:

Platform Accept non- UK residents Requirements
Assetz Capital Yes : A UK bank account is required : Proof of ID and address is required. Investors should be able to sign up directly on the platform with their local address.
Octopus Choice Yes : A UK bank account is required : Proof of ID and address is required. Investors should be able to sign up directly on the platform with their local address.
Landbay Yes : A UK bank account is required : Proof of ID and address is required. Investors will have to contact Landbay customer support as their sign-up form won’t accept foreign addresses.
Lending Works Yes : A UK bank account is required : They will accept non-UK residents, providing the investor is a UK tax payer.
LendingCrowd No : Must be a UK resident, paying tax in the UK.
Funding Circle No : Must be a UK resident, paying tax in the UK.
RateSetter No : Must be a UK resident but don't need to be UK tax payer.
Zopa No : Must be a UK resident, paying tax in the UK.

Figure 1: Foreign investors on UK P2P platforms

We’re also aware that Lendy, Ablrate, MoneyThing and Funding Secure will also accept EU investors.

A UK bank account is either required or at least makes the process a lot smoother. The good news is that a number of challenger banks have emerged in the past couple of years, such as Revolut, that can offer UK accounts fairly pain free.

Investors who sign up to Orca’s investment platform are also provided with an account which can be offered to investors in the Eurozone. So, if you are an EU investor interested in investing in UK P2P platforms please get in touch ([email protected]).

How can the industry make this easier?

There are options for investors, but clearly investing into the UK market as an international investor is not easy. The exception is Funding Circle who entered the EU market by acquiring the Berlin-based platform, Zencap. They further facilitate cross-border investing through their listed investment fund, the FC SME Income Fund.

Funding Circle aside, international expansion does not appear high on the agenda for UK P2P platforms… and I don’t think we can blame Brexit, although it certainly hasn’t helped.

So, why is this?

Although the UK market-share of the EU market is declining it still dominates with approximately 70% of lender capital. In the past, it has been more attractive for P2P platforms to enter the UK market than for UK platforms to enter the EU market. For example, Investly operates in the UK, and the Irish platforms, Linked and Flender, have gained UK FCA authorisation.  

Perhaps EU investors don’t want access to loans originated in the UK? There is an additional currency risk when investing in GBP and what will happen to exchange rates with Brexit is likely to be a concern. If you throw into the mix the additional language barrier, it doesn’t seem worth the hassle. Average rates of approximately 5% are also far less than those offered by EU market leader, Mintos, at 12%. Although we would argue that this risk is also greater.  

Regulation is also a key blocker. Regulation of the UK P2P market is best in class, with the FCA implementing separate, distinct rules to regulate P2P Lending. EU member states currently have different regimes for regulating P2P lending. There is not a consistent approach, so if a UK-based P2P platform was to enter the EU market they would have to circumnavigate different rules. With no common regulatory framework (yet), the effectiveness of the EU as an overarching entity diminishes.

If the EU were to have a standard regulatory framework which allowed for passporting of peer to peer lending permissions, then entering other markets might be of interest to UK P2P platforms. The European Commission (EC) has started considering harmonising P2P regulation across member states under the Capital Market Union action plan. The UK regulatory framework would be an obvious example for the EC to follow, however, with Brexit negotiations ongoing, the UK’s influence over this type of policy will be reduced. This is bad news for UK platforms.

Options and the future….

An alternative to gain exposure to the underlying assets might be to invest through an investment trust such as P2P Global Investments (P2PGI) or the Funding Circle SME Income Fund. Although it’s not the same, as investors are impacted by market sentiment. P2PGI has been trading at below NAV for some time. It’s not the solution we would like to see develop.

With the UK P2P players generally focusing on their own turf we may see the evolution of a new product type to facilitate cross-border investing. We are also likely to see the rise of large EU platforms with global ambitions. The market is moving in the EU, and the UK platforms might be wise to expand their reach.

…watch this space….