Peer to peer (P2P) loans are likely to become increasingly ‘intermediated’ through specialised investment trust or fund products, as the sector looks set to become a greater threat to traditional bank lending models.
This was one of the arguments made by Altus Consulting in its formal response to the recent government consultation on the inclusion of P2P lending in Isas, which also suggested that the plans would only see significant growth if the industry moves away from a ‘direct’ model.
The cost of this intermediation, such as management fees and such like which add a layer of additional fees for the investor, is likely to be offset by P2P platforms lowering fees, according to the financial consultancy.
It adds the burden of supporting an entirely new asset class with different settlement and trading methods is expected to prevent existing wrap platforms from entering the space using a direct P2P model, with growth instead via investment trusts and funds using P2P loans as an asset class.
Bruce Davidson, a consultant at Altus, stated: “Some may mourn the loss of the original directness of P2P and worry it will become just like the banks, but the banks have reason to fear the increasing use of P2P intermediaries.
“Intermediaries can manage more money than amateur ‘peers’ ever could, providing P2P with scale on the deposits side. On the lending side, nimble, technology-driven underwriting by P2P platforms and intermediaries makes banks’ lending processes look slow and unattractive to borrowers.”
He added that intermediation, whether in the form of funds or some sort of discretionary lending platform, will be essential to achieving the sector’s full potential to challenge the banks.
Late last year, the Tax Incentivised Association argued in its response to the Treasury’s consultation that P2P loans should be invested in a separate Isa type vehicle, pointing out that this would permit appropriate regulation and controls over transferability and liquidity to be controlled in ways that do not impact stocks and shares Isas and cash.
The Financial Conduct Authority came out earlier this week to set out a ‘post-implementation review’ of the new regulatory framework covering crowdfunding platforms next year, which could see rules relating to P2P lenders toughened to reflect increasing risks to consumers.
The regulator said that new regulations, which came into force in April 2014, have led to a threefold increase in investment in the market over the past year, with many crowdfunding websites continuing to mislead consumers.
As part of the Autumn Statement, support for P2P lending and crowdfunding platforms will come through a package of measures to remove barriers to their growth from regulation and tax rules, meaning individuals lending through these platforms will be able to offset any losses from loans which go bad, against other P2P income.
peter.walker@ft.com
