Peer-to-peer (P2P) lending has become an increasingly important source of funding for individuals and businesses in the UK, especially smaller businesses. Lending volumes among the country’s major P2P lending platforms increased by two thirds in 2016, and by the end of 2017, the cumulative total surpassed £8 billion, according to data from trade body the Peer-to-Peer Financial Association (P2PFA).

Image: London, England, Pixabay

Out of the £2.9 billion lent through online platforms in 2017, £1.9 billion went towards businesses, highlighting the growing importance of the alternative financing method for SMEs in the UK.

“P2P lending has brought about real benefits, not only for the UK’s small and medium-sized enterprises (SMEs), but our economy at large,” said Stephen Barclay, the Economic Secretary to the Treasury. He added that it was crucial for the government to ensure that the industry can continue to thrive and innovate, notably by proposing favorable regulation.

Echoing Barclay’s statements, Kevin Caley, the founder of UK P2P lending platform ThinCats, noted:

“SMEs employ the majority of people in the UK, and their performance has a profound effect on the health of the economy. By giving thousands more small businesses vital access to funding, the P2P sector has a crucial role to play in the UK.”

The UK P2P lending industry

Zopa CEO Jaidev Janardana, Oct. 2017, via Twitter

Since the launch of Zopa, the first company in world to offer peer-to-peer loans, back in 2005, hundreds of other platforms have emerged in the UK.

Funding Circle is undoubtedly one of the first significant online lending platforms for businesses, launching in 2010. Funding Circle offers small business loans from investors via its online platform and had lent over £3.2 billion to UK businesses, as of February 2018.

ThinCats and MarketInvoice are two other leading platforms for alternative business finance in the UK. ThinCats allows investors to make loans directly to businesses and focuses on secured loans. Since the platform’s launch in 2011, ThinCats had facilitated more than 900 loans providing funds to over £260 million to UK businesses, as of late-2017.

Meanwhile, MarketInvoice allows businesses to sell their unpaid invoices to a pool of global investors. This gives businesses instant liquidity and the buyers a healthy return. MarketInvoice also provides business loans. Since launching in 2011, the platform had funded more than £1,9 billion worth of invoices

In the consumer lending space, Zopa and RateSetter are two of the country’s most prominent platforms.

RateSetter wins Best Peer-to-Peer Provider of the Year at the Moneyfacts Consumer Awards, Jan. 2018, via Twitter

RateSetter was founded in 2009 and is known for having introduced into P2P lending the concept of a “provision fund,” an internal fund to insure against borrower default. It launched its platform in 2010 and had matched more than £2 billion in P2P loans and with over 400,000 investors and borrowers, as of May 2017.

Meanwhile, Zopa, which has been operating for more than 10 years and which is considered one of the largest P2P lending platforms in Europe, is looking to expand the range of financial products it offers to UK consumers by launching its own bank.

Zopa’s bank is scheduled to launch some time this year and will sit alongside the P2P lending business. The company plans to offer FSCS (the UK’s Financial Services Compensation Scheme) protected deposit accounts to savers, and personal loans, car finance, and overdraft alternatives to borrowers.

The company raised £32 million in funding last year to help support the build-out of the new bank’s technology infrastructure. It opened a developer center in Barcelona to work on coding for payment gateways, credit card processing and deposit systems.

But while numerous online P2P lenders have risen to the top, others have gone bust and exited the market. One example is Quakle, a UK P2P lender founded in 2010 that closed down just a year after with a near 100% default rate. Other platforms that closed down include BigCarrots, Squirrl.com and YES-secure.

YES-secure, which lured savers by promising returns of up to 18%, shut down in March 2014 before a regulatory crackdown. The company returned all the money it had attracted.