What will 2022 hold for P2P?
2021 was full of surprises and transformational change for the peer-to-peer lending community, and 2022 promises to be no different. From regulatory change at the Financial Conduct Authority (FCA); to a growing focus on investments which offer environmental, social and governance (ESG) benefits; and the promise of at least one stock market float.
Small- and medium-sized enterprises (SMEs) are expected to rebound after two years of Covid disruption, creating a deeper pool of borrowers for P2P lenders to draw from. And retail investors – frustrated by rising inflation – are already starting to explore alternative investment options such as P2P, which could lead to a resurgence of Innovative Finance ISA (IFISA) activity.
We asked some of the leading voices in the P2P lending space to share their predictions for the year ahead…
David Turner, chief executive, Invest & Fund
“2022 will be a very exciting year – the most exciting since the sector formed. It will be the year when P2P truly bursts into the consciousness and gets taken seriously as a genuinely more attractive model than the banks and traditional players. A year when it will dawn on commentators that P2P actually performed during Covid really strongly and in many cases much better than the big banks, which truly reflects the robustness/maturity of their internal approach and inherent capability.
“This will be a year of accelerated and material volumes growth, with strong credit performances starting to become more visible and profiled by commentators. There will be a move by many platforms to a clear trajectory to sustainable profitability, and we will see increased regulation but only to appropriate levels commensurate with a more mature/sizeable sector.”
Neil Faulkner, chief executive and head of research, 4th Way
“In 2022, we’ll see some delayed pandemic defaults arise, but the industry will continue to grow and provide resoundingly positive results for investors for the 18th consecutive year. “The industry still needs to grow even more before we’ll see any substantial surge in acquisitions and mergers, but we’re likely to see more new online lending platforms emerge.
“UK-based investors will shift a bit more cash to platforms in continental Europe, as the FCA makes it harder for ordinary investors to access this excellent asset class domestically, and as the European market matures further with common rules across the EU.”
Bruce Davis, co-founder and joint managing director of Abundance Investments
“This year will be pivotal for P2P and crowdfunding, which has fought hard to get the regulator to recognise the benefits which the sector provides within the wider financial services industry. “We need to make sure that any measures which are taken to further constrain the reach and potential of the sector are based on solid evidence and in particular that the standards of the regulated platforms are not judged in light of the failures from the unregulated markets.
“On a positive note, the revolution in customer motivations shifting from traditional measures of performance to broader based metrics of ESG should provide an opportunity for a sector which has been a pioneer of purpose-led investing.”
Nicola Horlick, chief executive, Money&Co
“It is becoming harder to find good quality SMEs to lend to because there have been so many government-backed loans made by the big banks. That means that we will be focusing on our speciality lending (litigation and music). I think the lack of good quality borrowers will place a constraint on growth for the overall sector.”
Narinder Khattoare, chief executive, Kuflink
“I don’t think there will be any new entrants in this space, I think the sector will continue to grow as there is a demand for borrowers and investors in this space, it will be interesting to see the consultation paper from the FCA. I think most platforms will have contingencies in place if they do steer retail investments away from development loans.
“I think the IFISA will have a record-breaking year, although the average interest rates have gone up people will move away from some providers as they offer unrealistic returns. “We are on course to be profitable as a group in 2022!”.
Mike Carter, head of platform lending, 36H Group
“The impact of inflation on personal savings will cause investors to look more widely for income-generating investment products, and this should increase investor interest in P2P loans in the next 12 months.
“Over the last 12 to 18 months a number of P2P platforms have put in place strategic funding structures which had been planned pre-Covid but which haven’t yet had the opportunity to fully come on stream, and these should start to generate significant growth in 2022. Examples are CrowdProperty’s and Lending Work’s institutional funding lines and Zopa’s banking licence.
“SME P2P lenders such as Assetz Capital and Funding Circle should see the benefit in 2022 from the large volume of SME borrowers that used digital loan applications for the first time in 2020 due to the government’s Covid schemes, helping SMEs to move towards greater preparedness to use online borrowing solutions.”
Konstantin Boyko, chief executive, JustCoded
“Globally I am pretty sure that the market is going to continue growing and our own data can support that statement.
“At the same time, the existing platforms will continue to scale, especially with the development of regulations: not just pan-European regulations, but the less mature markets (for example in the Middle East) may transition from limited sandbox-mode operations to fully-functioning regulated markets in 2022.
“As for the UK market, this year there have been a few concerns for the P2P lending based on recent FCA restrictions, I am not sure if they were fully resolved. At the same time, the ECSP (EU regulations) will bring opportunities for the UK platforms to grow into markets that were previously hard to reach.”
Rishi Zaveri, chief executive and co-founder, Lendwise
“I expect the hunt for yield to continue – diversification via IFISAs is a good way to achieve this. Lendwise has launched its IFISA product and has AutoLend which allows an investor to tailor their diversification strategy. “P2P has a part to play in the financial services sector. It will continue to grow with new entrants as well as overall volume.
“I expect the industry to further advance technologically through methods such as open banking integrations and I anticipate volumes will pick up to match the overall increased appetite both from borrowers and lenders in the new economic environment post-Covid. “There will be possible challenges with government support schemes coming to an end especially with regards to repayments: underwriting models and policies will be put to a tough test!”.
Stuart Law, chief executive of Assetz Capital
“We expect a resurgence of retail investor demand.”
Brian Bartaby, founder and chief executive, Proplend
“P2P plays an important role in the financial ecosystem for both borrowers and lenders and the sector has proved itself resilient throughout the global pandemic. As long as it continues to operate under the existing regulatory framework, I can only see it continuing to grow and flourish in 2022 and beyond.”
Filip Karadaghi, co-founder and chief executive, LandlordInvest
“I would expect those that have established good processes (lending, customer service, tech, etc) to continue capturing market share whilst those with weaker fundamentals will struggle or even leave the industry. “New regulation to strengthen retail investors may impact some more than others.”
Cormac Leech, chief executive, AxiaFunder
“I predict investor demand for P2P assets will increase as:
- i) Inflation remains well above bank interest rates and investors seek ways to protect the buying power of their cash;
- ii) Stock markets soften due to central bank rate increases, driving investors to look for relatively uncorrelated asset classes. Litigation investing being one of the most uncorrelated; and
iii) There will be fewer platform blow-ups as the benefits of tighter FCA regulation and scrutiny start to manifest, resulting in increased confidence in the sector.
“I also predict a big increase in platforms based on blockchain infrastructure.”
Jude Cook, chief executive, ShareIn
“In the last 18 months we’ve seen sustained interest in impact and ethical investment platforms and related investment products, and in particular, a desire at a platform level to better communicate the performance of impact investment products.
“In 2022 we expect to see plenty of platform innovation in impact investment, in particular around the investor experience and how both investment returns and impact metrics are delivered in useful way to investors.”
Uma Rajah, chief executive, CapitalRise
“Innovations in technology have created new opportunities to invest in property, in faster and more accessible ways using online alternative finance platforms. By combining proprietary fintech platform technology and expertise in the property market, CapitalRise has expanded access to the prime sector of the property market to sophisticated and high-net-worth investors. We predict this will continue, supported by the resilient prime property market that has been seen.
“Investing in this asset class will continue to appeal to those seeking strong risk-adjusted returns. These investments will continue to appeal to investors seeking strong risk-adjusted returns with the comfort that investments are secured against prime property assets in highly desirable locations.”