Archive for January, 2013

My predictions for Peer to Peer lending 2013: where we will be in a years time!

January 14, 2013 Leave a comment

The year 2012 was an amazing one for Peer to Peer lending. We saw a significant interest from the UK and US governments in using it as a tool to rebuild their economies and helping small business get more capital. We also saw a 40% increase in the number of sites launched as well as move towards the mainstream for users of P2P as a source of funding.
What will 2013 bring as far as this exciting space is concerned? Here are my 4 predictions…(Start the drum roll!)

1. Mainstream finance NOW wants a piece of the pie

This already started towards the end of 2012:  Zopa , the largest and first lender in the UK received an undisclosed sum of new Venture Capital funding from the UK Private bank Rothschild. This was unthinkable just a few years ago: the whole idea of Peer to Peer lending is to get rid of the mainstream banks but now in a twist of events these very same banks have caught up on the importance of this sector and want a piece of the action! My view is that they should stay away from it: Peer to Peer lending  is all about giving the power of finance back to the man on the street: Zopa accepting this new funding round from Rothschild just throws this idea back in the bin! My assumption is that as Zopa has never really been a profitable company despite funding almost  260 Million in loans within the last 8 years, they simple needed cash in their coffers and decided not to bite the hand that feeds them!

2. Government involvement gets more structured,  regulation is on the way!

2012 saw the passing of the law on Crowdfunding in the US called the Jobs Act, this year will see this law turned into regulation when the SEC introduces the specifics regarding how the crowdfunding and Peer to Peer lending sector in the US will be regulated. This is a very exciting development as it means that equity crowdfunding which allows start-ups to raise capital in exchange for equity in their companies will become available to sophisticated investors as a new asset class. It may even become a new investment option for Pension funds. In the UK; th government has already indicated that it loves the whole idea of P2P lending by giving Zopa and Funding circle 20Million pounds each to help them reach more small businesses that need funding that the banks are not prepared to give. The new regulatory authority in the UK; The Prudential regulation Authority (PRA) has already indicated that it has P2P lending in its sights and will introduce rules and regulations mostly to give comfort to lenders and borrowers in the sector. This has been welcomed by the major UK peer to Peer lenders through the Peer to Peer lending association as they want more regulation so that they can reach more doubting Thomases who believe that the current light touch regime in the UK may mean that their rights are not protected. I will keep you posted on this one!

3. P2P will really become the new asset class for borrowers and lenders

I have been writing on this issue for the past 3 years wondering if P2P will ever be confirmed as the new asset class after cash, bonds, property, stocks and commodities. If the current ridiculously low rate of interest remain on savings accounts then this will be inevitable. Zopa boasts rate of 5.4% on funds lent on their site compared to a miserable 1.5% on savings accounts for the same amount with mainstream banks!  After factoring in the risks involved it definitely makes financial sense and lots of investors will start to see this in 2013!

4. The rise of Peer to Peer leasing and other variations of P2P lending

There has been a huge growth in offshoots of the Peer to Peer lending model such as peer-to-peer leasing where instead of loans, investors put money towards leases. There has also been an increase in the number of portals now offering invoice factoring. This is a form of lending whereby companies get a cash advance for the value of their current invoices by selling the value of their current invoices to a their party financier. Whilst factoring has been in existence just as long as mainstream finance, what is new is that factoring will use the online portal method that Peer to Peer lending has made famous by allowing companies to upload their factoring needs online and looking for third-party investors to provide financing based on their outstanding invoices. This is a very interesting development that means that small and medium-sized businesses have another new source of funding to build their balance sheets. WATCH this space!!!