Table Of Contents
DATAMONITOR VIEW 1
Catalyst 1
Summary 1
ANALYSIS 2
P2P lending is increasing its market share of gross advances as a result of the credit crisis 2
P2P lending companies are platforms that facilitate transactions between lenders and borrowers 2
Lenders invest their money into the P2P lending platform, seeking greater returns than those available on alternative financial products 2
Only consumers that have a good credit rating can become borrowers on P2P lending platforms 3
The market is subject to high level of adverse selection 4
P2P lending requires risk management to reduce the chances of lenders losing their investments 4
Default risk is usually shouldered by banks in the traditional lending and borrowing system 5
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 5
P2P lending companies are not authorized and regulated by the FSA 5
P2P lending companies have to register with the Office of Fair Trading 6
P2P has lower overheads, but banks do not charge upfront arrangement fees 6
The P2P lending market has experienced exponential growth from 2007 6
The P2P lending market grew at a CAGR of 80.9% from 2005 to 2009 6
P2P lending made up a negligible percentage of the UK unsecured personal lending market over the past five years 8
P2P lending companies will not increase their market share of gross advances significantly in the near future 9
As the economy recovers, banks will increase their gross lending 10
New high street banks will increase competition for deposits and advances 10
Increased liquidity in the P2P markets will attract more investors 10
Zopa is the main UK player, although others are entering the market 10
Zopa is the main player in the UK market 10
The average Zopa lender is more mature than the average borrower 11
Zopa offers competitive market rates 12
Zopa's growing reputation has encouraged other players into the market 13
YES-secure start trading in June 2010 13
Funding Circle focuses on small business lending 13
Minor barriers to entry make it easy for competitors to enter the market 14
Competitors in the US could branch into the UK market 14
Aggregator websites and promotional offers attract new business to P2P lending websites 14
Existing players have performance data 14
Consumers are unaware of how the different types of risk will impact on the rate of return of their investment 15
Investors fail to realize the additional risks they face by investing in P2P lending 15
Investors cannot access their funds until the end of the contract 15
Reinvestment risk could see investors' risk/return ratios change over time 15
Naive investors who invest across different risk classes will not know the probability of expected returns deviating from actual returns 16
Listings allow borrowers to get competitive loan rates as supply outstrips demand 16
Consumers are more resistant to taking on debt than before the financial crisis 18
Movement between different markets requires borrowers to increase their record of successful borrowing 18
Product innovation and secondary markets could be the future for the P2P lending market 18
Secured personal lending could be the next step in P2P lending 18
Expansion into the mortgage market is likely to be too complex for P2P lending companies 19
The development of a secondary market would add sophistication to the field 19
The secondary market allows for notes to be bought and sold 19
The secondary market attracts a more sophisticated investor 19
The UK market could follow in the US' footsteps 20
A secondary market would increase liquidity and attract new members 20
P2P lending companies can attract the attention of a variety of different clients to increase growth 20
APPENDIX 22
Data 22
Definitions 23
Borrowers 23
Lenders 23
Listings 23
Further reading 23
Ask the analyst 23
Datamonitor consulting 23
Disclaimer 23
List of Tables
Table 1: Zopa's average clientele 2010 12
Table 2: Average statistics on amounts borrowed using Zopa over the 30-day period starting July 10, 2010 12
Table 3: Average lending rates on unsecured lending of £5,000 offered by institutions with lowest rates 13
Table 4: UK P2P gross lending, £, 2005-09 22
Table 5: Gross lending in the total unsecured personal loan and P2P market, £m, 2005-09 22
Table 6: Total gross advances and P2P gross advances forecast, £m, 2010-14 22
List of Figures
Figure 1: Gross lending in the P2P market has grown exponentially since 2007 7
Figure 2: The total UK lending market has experienced a year-on-year decline since 2005 8
Figure 3: P2P lending will see a strong rise in business in 2010, but will flatten out over the forecast period 9
Figure 4: Zopa listings show lenders battle to win investments 17