20 December, 2017

Peer to Peer Lending: 2017 Annual Review

Peer to Peer Lending: 2017 Annual Review

2016 was a landmark year for peer to peer lending (P2P). The eagerly anticipated Innovative Finance ISA (IFISA) launched, permissions were granted to financial advisers to recommend P2P, Lending Club caused scandal in the US, Zopa announced its move into banking, there were securitisations at major platforms, and much more. Here we’ll look back at 2017, comparing lending statistics with 2016, discussing the evolving landscape in the UK and beyond, and looking to the future with new emerging structures which could be fundamental to the asset class as it matures. To close, we’ll list some of the major milestones and headlines for the year.

Lending Figures 2017 v 2016

The introduction of the IFISA, notable securitisations at major platforms and institutional investors taking advantage of stable yield (approximately 30% of capital comes from institutions), ensured the asset class continued to grow beyond expectations in 2016. 2017 has similarly seen an increase in lending. Year-to-date (YTD), £3.7 billion has been lent. This compares with £3.3 billion in 2016 alone. While the growth rate may have subsided from years gone by, lending is still increasing.

Funding Circle, Zopa and RateSetter (the “big three”) rose above the £2bn mark, respectively; in Funding Circle’s case, they recently surpassed £3bn cumulatively lent all-time. Below are the top 8 platforms (each has lent over £250m) with their respective cumulative lending total, 2016 lending total, and 2017 YTD lending total displayed.

Figure 1: Top 8 P2P platforms by cumulative lending totals

NB: The graph is separated by sectors. Funding Circle, Assetz Capital and ThinCats operate in business-lending; Zopa and RateSetter, consumer-lending; and the remaining three, property-lending.

Interesting to note, only four of the eight displayed have surpassed their 2016 totals in 2017, with RateSetter – third largest platform by loan volume – falling short of its previous year’s total. In contrast, Funding Circle had an impressive year, becoming the first platform to surpass £1bn lent in a single year and originating 27% more loans (by value) in 2017 than 2016.

Another point of interest is Zopa, who, despite halting new investors lending across the platform earlier in 2017 (currently still not open to new investors), still facilitated more lending in 2017 than 2016: £890.3m in 2017 and £688m in 2016. This indicates that loan origination remains strong, but what’s clear is that investor appetite exceeds deal-flow. This is symptomatic of the consumer-debt market booming, which has raised ‘red flags’, requiring consumer-focused lenders like Zopa to enforce extra careful credit controls.

Below is the remainder of the major players in the UK market, with the exception of the top 8 contained in the graph above.

Figure 2: Platforms 9 to 23 in terms of cumulative lending totals

NB: The graph is separated by sectors, business (left 9), consumer (FundingSecure and Lending Works) and property (right 4).

As illustrated in the graph above, 9 of the 15 platforms facilitated more investment in 2017 than 2016. Funding Secure, Octopus Choice, Lending Works and Landbay had particularly successful years, with the latter two perhaps reaping the benefits of being early entrants with their respective Innovative Finance ISAs (launched early 2017): Landbay originated almost 3x as much capital in 2017 as 2016, £32m (2017) compared with £11m (2016), and Lending Works had to pause on-boarding IFISA investors after reaching £1m in 24 hours earlier this year.

Taking into account Figure 1 and 2 collectively, 13 out of 23 P2P platforms surpassed their 2016 lending total. While still positive, this is perhaps a signal of growth slowing.

What is still apparent is the dominance that the “big three” hold over the market. Respectively, Funding Circle, Zopa and RateSetter have facilitated £3bn, £2.9bn, and £2.2bn worth of loans, all-time. Collectively, the three platforms account for 69% of the market, with Funding Circle (navy segment) 1% behind the market share of 20 platforms combined (gold segment). See below for a further breakdown of market share in relation to the total cumulative lending of platforms.

Figure 3: “Big Three” v Others in terms of market share

Evolving Landscape

There are now over 50 peer to peer lending platforms in operation in the UK (20+ who are well established and included in Orca Analytics) and a wealth of service providers helping to support the growth of the asset class.

Below is an infographic we created this summer, illustrating the rich and diverse UK alternative lending landscape.

Diverse UK Alternative Lending Landscape

UK Alt Lending Ecosystem Infographic, Source: Orca

While this infographic is not exhaustive and will be revised periodically, the intention is to demonstrate the journey of expansion that P2P has been on. We have a governmental investor in the British Business Bank, which has lent hundreds of millions across some of the larger platforms. There are research, marketing and editorial outfits, as well as compliance firms, apps and new aggregator platforms taking advantage of the growing industry. Support services and originators are working together to continually evolve the asset class.

A Rich European Market

The broader European P2P lending market is similarly growing at a steady rate and now boasts almost 80 platforms spanning 19 countries. In September, we created a map to highlight the diverse range of P2P nations.

European P2P Lending Market Infographic, Source: Orca

The UK accounts for ¾ of cumulative all-time lending (€16.8bn as of Sep ’17) and has almost four times as many platforms as the second largest countries – France and Spain with six each. Germany and France are both nearing the £1bn lent mark (Germany may have surpassed £1bn by the time of writing), but it is the Baltic states of Estonia, Latvia and Lithuania which have emerged as strongholds for the asset class, with 13 platforms established across the three nations.

Innovative Finance ISA (IFISA) Makes Headway

One of the most significant developments of 2017 has been the Innovative Finance ISA. According to the Orca ‘IF ISA Tracker’, there are now 21 P2P platforms offering their respective IFISAs on the market, with the Assetz Capital ISA launching yesterday. This time last year, there were only two IFISAs available on the market.

The new ISA has faced scrutiny in the media due to limited uptake since launching April 2016 – statistics published this August highlighted that only 2000 accounts had been opened in the 2016-17 tax year. This was potentially deceiving, as only a handful of Innovative Finance ISAs were on the market at the end of the last tax year.

In contrast, it’s expected that by the start of the 2018-19 tax year, the vast majority of established and recognised platforms will have launched their ISAs or will at least be fully authorised, giving them the green light (assuming HMRC ISA plan manager status is approved) to launch their tax-efficient products.

Emerging Players and Models

After a landmark year in 2016, this year has seen P2P lending mature another level, with the emergence of new structures enabling investment across P2P from an indirect source.

Aggregators enable investors to gain exposure to multiple platforms from one place. In 2017, we have seen evidence of this new structure begin to take hold with companies like BondMason, Goji, and very soon, Orca, facilitating investment in a portfolio of platforms.

Altus Consulting produced a report last year entitled ‘Peer to peer: the meteorite approaches’. In the report, they predicted that by 2020 ‘the majority of P2P business, both retail and institutional, will be transacted through aggregators.’ 70-80% of capital is expected to flow through aggregators, with all investment trusts and new fund structures utilising this intermediary to invest across platforms. As for the self-directed retail audience, only 20-30% are expected to invest directly across platforms.

Greater choice, with potentially greater efficiency, is essentially what has emerged over the past year. Investors have the option of lending directly across a P2P platform, investing in a listed trust like P2P Global Investment to gain exposure to P2P, or, now, an aggregator platform. This level of choice is good as it increases awareness across different investor audiences and also, fundamentally, serves to reduce risk as increased diversification can be achieved with less of a burden on investors’ time – bear in mind these structures are not free, so it entirely depends on what the investor finds valuable. Similarly, conducting thorough due diligence is always strongly encouraged.

Read more about the aggregator structure in ‘P2P Lending: Rise of the Aggregators’

P2P Lending’s Major Stories and Milestones

The big news story that broke earlier this year was Zopa queueing new investors coming onto the platform. As the year wore on, major milestones were met and newsworthy headlines surfaced which, in cases, may have given P2P a bit of a wakeup call, but mostly reflected the maturation of the asset class. Here are some of the biggest headlines of the year.

Disclaimer: Headings below are not the article headlines verbatim. Subtext extracts are, however.

Lending Works first major IFISA arrival

Lending Works has become the first large peer-to-peer company to offer an “innovative finance Isa”, beating several better-known rival lenders to the launch…(The Telegraph)

Zopa closed to new investors

ZOPA has stopped accepting new money transfers and has created a waiting list for new investors, in order to prioritise existing customers and prevent lending queue times from increasing.. (P2P Finance News)

FCA warns platforms of wholesale lending

PEER-TO-PEER lending platforms that engage in wholesale lending may be breaching regulations and need to take action, the Financial Conduct Authority (FCA) has said…(P2P Finance News)

P2P surpasses £10bn mark

Over £10 billion has been cumulatively lent across 23 UK P2P platforms by July 2017. In the first half of 2017 alone, over £2 billion was invested through P2P…(Crowdfund Insider)

RateSetter loses out after previous wholesale lending activities

Ratesetter slumped to a £23 million loss for the year after a disastrous investment in an advertising business. The loss was due in large part to a £14 million write-off on Adpod Limited, which the lender ended up owning after using its own capital to prevent a huge default on its peer-to-peer loan book from hitting investors…(The Times)

Funding Circle drops active in favour of passive autobid product

On 18th September, we will launch a significantly improved and upgraded version of our existing Autobid and Autosell lending tools, and the option to manually choose which businesses to lend to and sell will be withdrawn…(Funding Circle update)

Orca to launch investment platform

PEER-TO-PEER analysis firm Orca is set to launch an investment platform. The proposition will automatically build portfolios of P2P investments across more than 50 per cent of the market. (P2P Finance News)


It’s been another exciting year for peer to peer lending. 2016 was going to be a tough year to top, but 2017 has done well to maintain P2P as a credit asset which is still very much accessible for retail investors, offering risk-adjusted returns in the region of 5%, and now has matured and evolved with new emerging structures offering different ways of getting diversified P2P exposure. The asset class is £150m shy of reaching £12bn lent all-time according to Orca Analytics, and as this next milestone approaches, and the new year approaches, we have high hopes for 2018.

On behalf of Orca, a personal thanks to our avid readers and subscribers, you are who we produce our research and analysis for, who we are building our investment product for, and who are truly valued by the entire Orca Team. Merry Christmas.