Published: June 2015
Pages: 52
Figures: 29
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About this report

NB this is an old report which we have not updated in the last couple of years. Let us know if you would be interested in a new version.

Peer-to-peer lending has continued to grow rapidly across Europe as lenders seek higher returns than are available from banks and borrowers embrace willingness to lend to sectors the banks are wary of – such as small businesses in the UK – and streamlined loan approval processes.

Platforms have scaled up to meet the opportunity, refining propositions, improving their credit assessment and other lending processes and strengthening their management teams.

Continued growth appears beyond doubt, creating further opportunities for those platforms which are able to execute their plans while avoiding lending pitfalls to keep their reputations intact.

What does the report cover?

This report reviews the industry across Europe, with particular focus on the UK, which accounts for the overwhelming majority of lending activity.

The report quantifies the scale of lending, historical growth rates, default rates and returns offered to investors while reviewing key factors behind these figures. It also includes an in-depth analysis of the relevant drivers of peer-to-peer lending growth – including wider trends in banking and lending, other peer-to-peer trends and the regulatory environment. Our view of the outlook for the industry is based on this analysis of historical trends and drivers.

The industry is frequently mentioned in the press with comments having particular focus on the level of returns which it offers to lenders, which are generally far higher than those from conventional banks, the degree of risk that lenders are incurring to obtain these returns and, in particular, the risk that returns may be seriously impaired by future widespread default.

This report explores the background to these and other issues, exploring what has happened in the industry to key metrics such as levels of lending, returns and default rates, and the factors which lie behind trends.

Leading platforms in the UK and across Europe are identified and profiled, and their performance and business models are analysed and compared.

We set out our views on how we believe the market could develop in future, taking into account such trends as regulation, institutional funding and securitisation and the impact on and likely responses of the banks.

Who is it useful for?

Peer-to-peer lending platforms
Investors in those platforms
Advisors including consulting firms, investment banks, lawyers and accountants
Banks and other parties operating savings accounts and consumer / small business loans.
Industry regulators and policymakers

What are the sources and methodology?

This report is based on:
– In-depth interviews carried out by us with five leading peer-to-peer lending platforms
– Discussions with other parties with interests in the industry
– Extensive research into published industry sources
– In-depth analysis of the macroeconomic environment and relevant peer-to-peer lending market drivers
– Financial analysis of the accounts of and loans data provided by companies in the industry

Information from these sources has been synthesised and presented clearly and concisely with extensive use of charts and tables to illuminate points and support conclusions


Peer-to-peer lenders operate as internet platforms which allow investors, typically individuals, to lend money directly to borrowers, without having to do so via a bank or other financial institution.

Peer-to-peer platforms originally focused on unsecured personal loans. However the concept has now evolved to include other variations such as:
– Loans to individuals secured on property or other assets
– Guarantor loans made to individuals where someone else, such as a parent with a higher credit rating, provides a guarantee of repayment
– Loans made to small businesses secured on the assets of the business and / or personal assets of its directors.
– Purchase of invoices from small / medium-sized businesses

Peer-to-peer lending builds on, and lies at the intersection of important trends in the modern economy:
– The development of the technology platforms needed to support secure and robust peer-to-peer lending platforms
– The increasing penetration of the internet into everyday life, which has allowed customers to get comfortable with entrusting large sums of money to an organisation represented solely by a website
– The development of the collaborative or sharing economy with peer-to-peer type models emerging across many markets.
– Widespread unpopularity of mainstream banks hence enthusiasm for an alternative
– A long period with low interest rates offered to savers giving them an incentive to seek out alternatives

The fundamental appeal to both lenders and consumer borrowers is getting a better rate of interest than is normally on offer from a bank. For small business borrowers, access to an alternative funding source which may lend to them when banks do not, and a quicker application process are even more critical.

Market size and growth
Peer-to-peer lending has grown exponentially over the last few years with total lending across Europe reaching almost £1.9bn in 2014, having approximately doubled in each of the last few years.

The UK is by far the largest market, accounting for 85% of the European total. However there are also significant markets in Germany and France, and platforms are being developed and launched in many other countries.

The main drivers of the sector have been its ability to offer attractive rates to lenders and borrowers.

Recovering economies across Europe have helped platforms to reduce loan default rates. As the sector has reduced its perceived risk, rates offered to lenders have inevitably fallen.

Consumer awareness has increased – by double in the last 18 months – but still remains below 50%

Some of the larger peer-to-peer platforms have started to accept government and bank/institutional finance, in order to speed up their rate of growth and potentially lower their cost of capital. In the US, there have been examples of securitisation of peer-to-peer loans to create investment bonds.

Leading operators
There is now a series of established operators covering most European countries.
– Most of the longest-established and largest platforms, such as Zopa and RateSetter in the UK and Auxmoney and Pret d’Union in Germany / France and Bondora, based in Estonia but operating across Europe, focus on offering loans to consumers.
– But, there are also some operators, such as Funding Circle in the UK, which focus on small businesses.

Platforms are generally lean operations with few employees

There are many variants on the core model with some platforms operating as pure marketplaces while others have evolved to resemble more structured ‘savings’-type products.

Revenue models usually involve charging fees to lenders and / or borrowers which typically are in the region of 1-5% of the amount lent.

Forecasts from those in the market and other commentators are for peer-to-peer lending continue to grow – although rates vary dramatically with estimates for the UK market in 2018 ranging from £4bn to £30bn.

We expect to see growth, underpinned by:
– Recovery in consumer borrowing following an upturn in the economy and confidence levels. Continued ability of platforms to offer better rates than conventional banks.
– Increased awareness and customer confidence as the sector matures and is regulated.
– Availability of more funds from access to pension and ISA investment as well as from the wholesale markets

The key risks to growth include:
– Widespread defaults shaking lender confidence
– Falling rates offered by platforms to lenders
– A change in approach by conventional banks involving them becoming more competitive in savings and personal loans

However, we do not believe these will prevent the growth of the industry
– Platforms have learned from experience and appear to be managing risk and bad debt levels successfully. Furthermore, there does not appear to be a strong behavioural driver to encourage overselling, as was the case with sub-prime mortgages.
– The main driver of falling rates has been the increase in the volume of funds received from lenders. If funds become short, rates are likely to rise once more.
– Banks will find it hard to become much more competitive on rates without cannibalising their existing business.

In the future, we expect to see banks increasingly working in partnership with peer-to-peer platforms, using them to provide services where they cannot do so competitively themselves.


About this report - 2
What does the report contain?
What are the objectives of this report?
Who is it useful for?
What are the sources and methodology?

Summary - 3
Market size and growth
Leading operators

About Apex Insight - 5
Company background
Consulting services
Related research
Research subscriptions

Contents - 6

List of charts and tables - 8

Peer-to-Peer Lending Overview - 9
Description of peer-to-peer lending
Customer proposition: lenders / investors
Customer proposition: consumer borrowers
Customer proposition: small business borrowers
Business models
Organisation and costs
Screening and due diligence

Market size and growth - 18
UK market
Other markets

Market drivers - 21
Growth of unsecured credit
Decreasing bad debt rates
Lending market conditions
Balance of funds available for lending with demand for borrowing
Government funding
Tie-ups with banks and other institutions
Equity investment
Tax treatment of peer-to-peer: Pensions and ISAs
Strengthening of management teams
Awareness levels and marketing

Leading peer-to-peer platforms - 35
UK platforms
Other European platforms

Outlook - 46
Main drivers of future growth
Expectations of future growth
Fall in the rates offered to lenders
Widespread default leading to poor returns
Increased institutional funding leading to a change in the nature of peer-to-peer
Response and role of conventional banks
Opportunities for existing platforms and new entrants

Appendix - 51
Peer-to-peer lending market definitions and abbreviations

List of figures (Peer-to-peer lending market report)

1. Rates offered to lenders by a range of peer-to-peer lenders
2. Rate comparison: typical rates offered to lenders by peer-to-peer platforms vs. typical UK bank savings accounts
3. Personal loan rate comparison of peer-to-peer platforms vs. typical UK bank loan rates
4. Zopa interest rate variation by loan amount
5. Peer-to-peer business borrowers
6. Leading peer-to-peer lenders – employee numbers
7. Operating cost comparison: Lending Club vs. traditional lender / basis points
8. Value of UK peer-to-peer loans made in the year / £bn
9. UK peer-to-peer loan value by type / %
10. UK unsecured consumer credit by type / £bn
11. 2014 peer-to-peer loan values: UK vs rest of Europe / £bn
12. Other European peer-to-peer loan value by type / %
13. UK unsecured consumer credit trends / £bn
14. Zopa default and arrears rate by year of loan origination
15. RateSetter default and arrears rate by year of loan origination
16. Funding Circle default and arrears rate by year of loan origination
17. Funding Circle average number of payments made prior to default by year of loan origination
18. Interest rates: £5k personal bank loan
19. Zopa historical returns to lenders
20. Bank partnerships and institutional investments in peer-to-peer loans
21. List of recent equity fundraising exercises made by peer-to-peer platforms
22. Recent senior appointments made by peer-to-peer platforms
23. Alexa rankings for leading UK peer-to-peer lending sites
24. Loans made by year by leading UK peer-to-peer platforms
25. Peer-to-peer platforms based in the UK
26. Loans made by year by leading peer-to-peer platforms elsewhere in Europe
27. Peer-to-peer platforms based elsewhere in Europe
28. UK unsecured consumer borrowing forecasts / £bn
29. UK peer-to-peer lending growth projections / £bn

Companies mentioned in the report

Abundance Generation
Assetz Capital
Crowdcube MiniBonds
Funding Circle
Funding Secure
Lending Club
Lending Works
Lloyds Banking Group
Market Invoice
Mayfair Bridging
Platform Black
Pret d’Union
Prosper Loans Marketplace
Quid Cycle
Rebuilding Society
Saving Stream
Syndicate Room
Trust Buddy
UK Bond Network
Wellesley & Co

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