Is P2P lending really outstripping the banks?

  • Last week, the P2P Finance Association (P2PFA) announced that its members, which make up a large proportion of the P2P lending industry, had outstripped the combined weight of the UK clearing banks in terms of net loans provided to SMEs during Q2 this year. In many ways, this is an astonishing statistic as it is widely accepted that P2P lending is still only a small sliver of the overall business finance pie chart.

    So what is going on?

    Words and figures

    The figures show that P2PFA members lent just under £750m to businesses in Q2 and that net lending (gross lending minus capital repaid to investors) was £191m. This compares to an equivalent figure of £130m by the banks. Pretty impressive when you consider that the P2PFA represents only a part of the sector, excluding giants like RateSetter and rapidly-expanding platforms like ArchOver.

    In the other corner, UK Finance statistics state that 69,300 new loans to the value of £7.1bn were approved in the same quarter and that the banks approved eight out of 10 SME loan applications. Then we have a recent poll conducted by the British Business Bank (BBB) – the Government’s own development bank – which revealed that one third of small business owners are still unaware of alternative finance options.

    But surely the statistics don’t lie?

    Money in, money out

    The UK Finance statement points out that, although there was an improvement in demand for credit during Q2, many SMEs are understandably choosing to pay off loans and keep any surplus cash on deposit until the smoke clears around the Brexit negotiations.

    If we drill down further into the Bank of England statistics, it soon becomes obvious that the figures swing wildly month-by-month and also by sector. For example, loans to manufacturers and real estate companies dropped significantly in April (a combined £458m), both having shown big moves in the opposite direction only two months previously. Short term trends can sometimes flatter to deceive – or make for a timely press release - and we perhaps shouldn’t always read too much into them.

    Strong growth

    What we can say with some certainty is that, despite vigorous efforts by detractors to put obstacles in the way – and a tendency for borrowers to hold back due to political and economic uncertainty – the alternative finance sector continues to grow. There is no shortage of people and institutions willing to lend and the sums involved in individual loans are growing bigger by the day. Altfi Data confirms that the cumulative amount of money raised this year, excluding crowdfunding, has already reached £3.25bn.

    The banks are fighting hard to regain their pole position in the financial sector, but they won’t succeed by standing still or by mounting a massive charm offensive. The P2P brigade have changed the finance sector for good and digital banking is the future – just ask RBS.

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