P2P lending: what's in it for brokers?

Peer-to-peer lenders are expanding from the UK to Europe, presenting opportunities and headaches for brokers.

What's In It For YouBacked by Rupert Murdoch, peer-to-peer lenders are expanding from the UK to Europe, presenting opportunities and headaches for brokers.

Here’s another piece of jargon to add to your list: P2P lending. December saw UK peer-to-peer lender ThinCats launch its Australian website, offering loans to small businesses. They join established firms Ratesetter, a subsidiary of a large European P2P lender, and Society One, an Australian business backed by News Corp and Westpac.

ThinCats allows sophisticated investors to assess loan submissions by small businesses (up to $2m), and then pick an interest rate, typically between 8% and 16%. The lowest bidder gets to fund the loan, with funds going through ThinCats and the company taking a fee and ongoing cut of the interest.

SocietyOne’s model is slightly different: they analyse and make decisions about the loan, while investors receive returns from the whole combined portfolio. It’s also marketed at personal borrowers, with loans ranging from $5,000 to $30,000. Ratesetter connects lenders and borrowers of similar scales, and includes a ‘provision fund’ in case of late payment or default.

With peer-to-peer lending hitting the news, it’s surprising that traditional lenders saw P2P as less of a threat in this year’s Genworth Home Grown survey. In 2013, 14% of lenders thought P2P was the biggest threat to the industry; in 2014 only 2% argued so. It’s worth noting that P2P’s popularity in the UK in part stems from the extremely poor returns for traditional savers – with interest rates of around 1% – while rates in Australia remain slightly higher.
Peer-to-Peer Lending
Finally, there remains the fundamental question of brokers’ roles in a system that prides itself on minimal middlemen. While the sites themselves match lenders and borrowers, ThinCats CEO Sunil Aranha suggested brokers could be renumerated for being “introducers” and for taking part in the credit processing work. Whether doing so is worth brokers’ time is open to question.