The Bankwatch

Tracking the consumer evolution of financial services

Archive for the ‘P2P Lending’ Category

New Datamonitor report on P2P Lending in the UK has some interesting analysis points

I do not have access to the report, but the  summary is intriguing.  Recently Zopa have been lobbying for regulation of P2P Lending in UK.  It is interesting that Datamonitor refer to low barriers to entry as creating more competition.  My impression is that regulation would be a good thing to ensure quality of the providers to ensure longevity of the business model.

The scope does briefly mention the consideration of regulation, but hard to critique without the report in hand.  There are some fascinating statements in the analysis summary (pasted below) that are very interesting, such as:

”Naive investors who invest across different risk classes will not know the probability of expected returns deviating from actual returns“

UK Personal Lending 2010: Peer to Peer Lending | Datamonitor

Peer-to-peer lending has taken a small but growing share of gross advances in the UK unsecured personal lending market since the concept was born in 2005. It is now a viable alternative option for lenders and borrowers alike.

  • Analyses and forecasts the shape and size of the peer to peer lending market
  • Identifies main competitors and their business strategies
  • Considers future avenues of market development

Report Highlights
Peer-to-peer lending has seen its market share of gross advances increase as a result of the credit crisis. However, it remains a small part of the unsecured personal lending market in the UK.
Zopa was the UK’s only player in the peer-to-peer lending market from 2005 to 2009, however recently there have been two new entrants into the market; Yes-Secure and Funding Circle. This has created more competition in the market and highlighted the low barriers to entry.



Pasted from Analysis summary:


P2P lending is increasing its market share of gross advances as a result of the credit crisis
P2P lending companies are platforms that facilitate transactions between lenders and borrowers
Lenders invest their money into the P2P lending platform, seeking greater returns than those available on alternative financial products
Only consumers that have a good credit rating can become borrowers on P2P lending platforms
The market is subject to high level of adverse selection
P2P lending requires risk management to reduce the chances of lenders losing their investments
Default risk is usually shouldered by banks in the traditional lending and borrowing system
The P2P lending company is responsible for identity checks 5
Borrowers and investors are protected against the risk of the P2P lending company going bankrupt
P2P lending companies are not authorized and regulated by the FSA
P2P lending companies have to register with the Office of Fair Trading
P2P has lower overheads, but banks do not charge upfront arrangement fees
The P2P lending market has experienced exponential growth from 2007
The P2P lending market grew at a CAGR of 80.9% from 2005 to 2009
P2P lending made up a negligible percentage of the UK unsecured personal lending market over the past five years
P2P lending companies will not increase their market share of gross advances significantly in the near future
As the economy recovers, banks will increase their gross lending
New high street banks will increase competition for deposits and advances
Increased liquidity in the P2P markets will attract more investors
Zopa is the main UK player, although others are entering the market
Zopa is the main player in the UK market
The average Zopa lender is more mature than the average borrower
Zopa offers competitive market rates
Zopa’s growing reputation has encouraged other players into the market
YES-secure start trading in June 2010
Funding Circle focuses on small business lending
Minor barriers to entry make it easy for competitors to enter the market
Competitors in the US could branch into the UK market
Aggregator websites and promotional offers attract new business to P2P lending websites
Existing players have performance data
Consumers are unaware of how the different types of risk will impact on the rate of return of their investment
Investors fail to realize the additional risks they face by investing in P2P lending
Investors cannot access their funds until the end of the contract
Reinvestment risk could see investors’ risk/return ratios change over time
Naive investors who invest across different risk classes will not know the probability of expected returns deviating from actual returns
Listings allow borrowers to get competitive loan rates as supply outstrips demand
Consumers are more resistant to taking on debt than before the financial crisis
Movement between different markets requires borrowers to increase their record of successful borrowing
Product innovation and secondary markets could be the future for the P2P lending market
Secured personal lending could be the next step in P2P lending
Expansion into the mortgage market is likely to be too complex for P2P lending companies
The development of a secondary market would add sophistication to the field
The secondary market allows for notes to be bought and sold
The secondary market attracts a more sophisticated investor
The UK market could follow in the US’ footsteps
A secondary market would increase liquidity and attract new members
P2P lending companies can attract the attention of a variety of different clients to increase growth
Further reading
Ask the analyst
Datamonitor consulting
List of Tables
Table 1: Zopa’s average clientele 2010
Table 2: Average statistics on amounts borrowed using Zopa over the 30-day period starting July 10, 2010
Table 3: Average lending rates on unsecured lending of £5,000 offered by institutions with lowest rates
Table 4: UK P2P gross lending, £, 2005-09
Table 5: Gross lending in the total unsecured personal loan and P2P market, £m, 2005-09
Table 6: Total gross advances and P2P gross advances forecast, £m, 2010-14
List of Figures
Figure 1: Gross lending in the P2P market has grown exponentially since 2007
Figure 2: The total UK lending market has experienced a year-on-year decline since 2005
Figure 3: P2P lending will see a strong rise in business in 2010, but will flatten out over the forecast period
Figure 4: Zopa listings show lenders battle to win investments

Written by Colin Henderson

October 2, 2010 at 19:36

Posted in P2P Lending

Social Lender Prosper files amended S-1 with SEC in US

Prosper continues to seek approval from the securities regulator with a 3rd S-1 filing noted here at P2P Lending News.

Written by Colin Henderson

April 15, 2009 at 13:46

Posted in P2P Lending

Tagged with ,

Comment on “Beyond the age of leverage: new banks must arise” | Niall Ferguson

Niall Ferguson nails the ultimate irony in the world today.  Every government is set on increasing debt as a means to solve the current crisis, however the reality is that they are potentially sending good money after bad, and not addressing the core issue. (emphasis mine)

Beyond the age of leverage: new banks must arise |

Call it the Great Repression. The reality being repressed is that the western world is suffering a crisis of excessive indebtedness. Many governments are too highly leveraged, as are many corporations. More importantly, households are groaning under unprecedented debt burdens. Worst of all are the banks. The best evidence that we are in denial about this is the widespread belief that the crisis can be overcome by creating yet more debt.

He goes on to offer specific ideas on how the great deleveraging could manifest:

  • bank debt write offs with terms designed to give banks time to sort themselves out within a fixed time – he proposes 10 years.

“There are precedents for such drastic action, notably the response to the Swedish banking crisis of the early 1990s. The critical point is to avoid the nightmare of a state-dominated financial sector. The last thing America needs is to have all its banks run like the rail company Amtrak or, worse, the Internal Revenue Service. State life-support for moribund dinosaur banks is an expedient designed to avert the disaster of a generalised banking extinction not a belated victory for socialism. It should not and must not impede the formation of new banks by the private sector. So recapitalisation must be a once-only event, with no enduring government guarantees or subsidies. There should be a clear timetable for “reprivatisation” within, say, 10 years.”

  • “The second step we need to take is a generalised conversion of American mortgages to lower interest rates and longer maturities.”  He goes on to highlight systemic changes to debt and terms of debt contracts over the last 150 years that were used as vehicles to bring the economy back in line.

Point for economists and Keynes.  Ferguson says:

Today’s born-again Keynesians seem to have forgotten that their prescription of a deficit-financed fiscal stimulus stood the best chance of working in a more or less closed economy. But this is a globalised world, where unco-ordinated profligacy by national governments is more likely to generate bond market and currency market volatility than a return to growth.

Relevance to Bankwatch:

All in all another thoughtful piece directed at broad based solutions that deleverage the world.  His argument that the approach of all world governments to borrow and create government based stimulus is not directed at the problem crisis symptoms, and sounds common sense.  When asset values have collapsed in the world by 40 – 50% and debt remained unchanged, how is more debt a solution?

It strikes me there is an opportunity here for banks’ to consider new and innovative products that alter terms, conditions and rates of existing debt that relieves pressure as suggested in Fergusons 2nd point above.  I would add that not just ‘New banks must arise” per Ferguson’s title, but that financial alternatives must arise too.

Summary of p2p lending market in Poland | Cap Gemini & Gemius

Report with rich data on the Polish p2p market. Data is qualitative comparing typical internet population, and p2p population. In general it appears that p2p lending in Poland is skewed towards to the average internet population. Having said that, the distrust level of Banks in Poland is higher than in the west, so the outcomes are not directly comparable.

Well worth the read.

Internetowe pożyczki społeczne :: Gemius SA

Raport w języku angielskim [note: link to English pdf]

Written by Colin Henderson

July 7, 2008 at 21:27

Posted in Europe, P2P Lending

How much about the approach to Branchless Banking is driven by incorrect assumptions?

Johan picked up on my post about mobile loans, but interestingly pointed to an Economist article in November entitled A bank in every pocket?

Mobiles bankieren in die EU. « – was einer so denkt –

Bis jetzt hatte ich gedacht, dass das eine afrikanische Tradition wäre. Ich finde das ganz spannend.

Until now, I had thought that this would be an African tradition.
  I find this very exciting.

I have covered the African mobile phone market, and this article builds on what is happening there. 

These “branchless” schemes typically allow customers to deposit and
withdraw cash through a mobile operator’s airtime-resale agents, and
send money to other people via text messages that can be exchanged for
cash by visiting an agent. Workers can then be paid by phone;
taxi-drivers and delivery-drivers can accept payments without carrying
cash around; money can be easily sent to friends and family. A popular
use is to deposit money before making a long journey and then withdraw
it at the other end, which is safer than carrying lots of cash.

Lots going on, BUT what really struck me was this sentence.

There is no need to set up a national network of branches or cash

So, what are we saying here.  The unbanked, those “poor” folks who for whatever reason have no access to ‘real’ banking services are in fact getting true Direct Banking!!!  [emphasis and sarcasm thrown in for free]

In North America, we are insulated from true creativity in financial services, partly by how Banks’ think, but probably even more by what consumers expect.  When you live in the middle of an incredibly poor area with nominal resources, such as Africa, it seems you can get accept total creativity in Direct Banking/ Branchless Banking, that would not work in North America.  Or would it?

How much about the approach to Branchless Banking is driven by incorrect assumptions?  Maybe, just maybe, our approach to creative solutions is limited by the current environment.  If we approached Direct Banking as Africa has done, and assumed no current resources, what kind of solution might we be able to develop that might address the business case challenges. 

Written by Colin Henderson

January 24, 2008 at 02:15

Virgin enters the P2P loan market

Virgin have taken a majority stake in CirclLending, a P2P lending operation in the US. Jim at Netbanker pointed this out to me the other day.

This is significant, because for the first time, we have billion dollar company successful in other fields, including financial services, entering the space.

Richard Branson’s Virgin Group has taken a majority stake in Massachusetts-based CircleLending, a provider of loan administration services that specialises in managing loans between relatives and friends. The investment will form the foundation for a new Virgin-branded financial services offering in the US.

Source: Finextra

This should be a wake up call to Banks. Certainly, no-one is suggesting P2P lending will overtake Banks, at least not just yet, but where will Virgin take this?

Written by Colin Henderson

May 20, 2007 at 23:53

Posted in P2P Lending

P2PVenture : MeetingMinutes-2007-02-03

BarCampBank3  met in Paris last weekend, and unfortunately I could not attend.  Tom Purves from Toronto was there and made a difference. 

We had a founding session of the P2PVenture project within BarCamp:BarCampBank3. The session gathered more than 15 people and we had a lively discussion on the targets, regulation and mechanism to build and operate a platform to match enterprise projects / startups investment needs and distributed investment capacities.

Source: P2PVenture : MeetingMinutes-2007-02-03

Its exciting that BarCampBank has settled on P2P lending as a topic – P2PVenture.  This is a good one to tag, and keep up with, for those interested. 


Written by Colin Henderson

February 9, 2007 at 11:47

Prosper loan analysis suggests importance of qualitative assessment – people matter!

I have been thinking and listening about P2P/ social lending, and wondering exactly what is the outcome and to relate that to traditional banking.

I took the first seven loans from Prosper tonight, and here they are. I re-sorted them based on the rate column.


The rates mapped to the credit scores. The better the credit grade, the better the rate. (I have to research what HR means, so I ignored that as an outlier)

Then I sorted by Debt to Income … I expected to see the number of bids relate to this one based on lenders reducing their relative risk to that borrower. Wrong … there is no apparent correlation to that statistic. That is interesting to me, because that is the core attribute traditional Banks look at.


Then I sorted by amount, and still no correlation leaps out.


Final point here.  For each of those rates, the rate shown is what the borrower pays, and what the lender receives.  Prosper take 0.8% approximately (three year loan) so that is so small as to be un-noticeable.  Basically the spread is almost zero.  Banks make 5-6 % spread on many loans, and credit cards are off the scale.

So the lender return is very high in this model.  Over time, I would expect lender rates to flatten out provided borrowers are good, and keep their loans up to date.  In fact groups will come in to play, and insist on the effective bank spread benefit being shared between the lender and the borrower.

This is one of the beautiful things about this model.  As that dynamic plays out (or not) Prosper are ambivalent … they can watch a perfect market sort itself out, and the winners are the particpants;  the lenders and the depositors.

Relevance to Bankwatch:

Social lending might just teach us things. Being a banker I used primary Banker attributes in the spreadsheet. Bankers use them because they eliminate risk from poor judgement. The decision becomes more quantitative, and audit-able.

In Prosper, this tiny example suggests the correlations are not as expected, suggesting that their are other attributes coming into play, qualitative attributes, that lenders can bring to bear. The power of groups, borrower reputation, borrower loan purpose, borrower history and borrower lifestyle.

It would be too expensive for a Bank to use this methodology, but when the process is outsources to engaged, interested lenders, whose best interests are served by their own values a new model is born.

More analysis required, but I can see the some direction.

Technorati tags: , , ,

Written by Colin Henderson

December 12, 2006 at 00:37

Could P2P lending have the perfect opportunity in Australia?

In response to Charis post, I would be more inclined to think that the credit bureau system down under precisely supports P2P lending, particularly with the Prosper model. Prosper is in essence eBay for loans, so its focussed on the reputational value of members, and the community advice, groups etc to ensure loans losses are minimised. Lack of adequate Bureau reporting would provide an additional competitive advantage P2P lending.

This might be a hindrance for Zopa, who take on the risk assessment on behalf of their members. Lack of positive information, would require them to rethink their approach used in the UK.

I would add that other sites, such as Wesabe, who promote sound financial planning, and budgetting would particularly work well in this environment.  I see Wesabe as a powerful example of an adjunct to P2P lending, and the environment where bureau reporting is lacking makes an interesting opportunity.

So will we see an equivalent model get up in Australia? It seems unlikely given we have a vastly different credit reporting environment to that which exists in the US and UK. Firstly the Australian market is dominated by two credit bureaus – Baycorp Advantage and Dun & Bradstreet.

Source: The Better Banking Blog: Peer-to-peer lending in Australia?

<Whine> about Blogger.  In response to Charis post, I wanted to comment on her blog, but Google’s blogger wouldn’t let me!  It asked if I wanted to log in using my Google ID which I did, but then it still wouldn’t accept a comment.  I love Google, but hate blogger, and especially their comment system, which reminds me of bad telephone IVR/VRU systems, when you get locked into an endless loop. </whine>


Written by Colin Henderson

December 9, 2006 at 14:51

%d bloggers like this: