News

The elephants marching into the P2P room

January 20, 2017 • By TAB team

The news this month that, whilst delayed, Hargreaves Lansdown will roll out their peer-to-peer lending platform in the second quarter of this year, was further evidence that major players in the traditional finance space are trying to carve out their niche in the $3 billion world of P2P lending.

The news this month that, whilst delayed, Hargreaves Lansdown will roll out their peer-to-peer lending platform in the second quarter of this year, was further evidence that major players in the traditional finance space are trying to carve out their niche in the $3 billion world of P2P lending. This market continues to grow at an explosive pace, giving cash investors the potential for a larger return than traditional methods of cash saving, such as building societies, banks and cash products.

Hargreaves Lansdown’s platform – called “HL Savings” - is due to be rolled out sometime in April or May 2017. It joins Goldman Sachs’ Marcus, Octopus’ Choices and Downing’s Downing Crowd in an alternative finance space that, up until now, has been dominated by tech startups, such as Zopa, RateSetter and Funding Circle.

Is this trend set to continue? Is it safe to assume that it won’t be long before all of the big banks and financial institutions offer their own version of a similar service?

It seems we're heading that way, and the trend seems unlikely to slow, with huge investment being made by these institutions so that they might fight for their piece of a growing P2P market.

The fact that Hargreaves Lansdown – one of the more traditional British money managers – is moving in this direction is probably the biggest tell yet that P2P is here to stay, here to grow and here to take chunks out of the traditional debt-finance space.

But what does this news mean for crowd finance in general?

On the one hand, investment always validates potential and growth in any market, and this news is no different. Big players with deep pockets are putting their money where their mouth is by investing in this technology and this method of finance. This should only be good news for everyone involved, as you can be certain that the likes of Hargreaves Lansdown and Goldman Sachs won’t be moving into a new market where they see no growth.

The arrival of these big players should also increase standards and regulation, whilst lowering costs, as the increased competition leads to further innovation and excellence being demanded by customers, who now have an increasingly wide choice when deciding which P2P platform to use.

So, on the whole, the increasing institutionalisation of P2P looks positive for the industry's growth and to increasing market competition.

But, like being at a great party with a small group of very cool people, what happens when the rest of the world turns up late with cheap wine? Does the volume cause the quality to drop? Do innovation and progress actually slow and fall away?

The arrival of large but, traditionally, slow moving players could potentially lead to the pace of change and innovation decelerating, as businesses – whose priorities clearly lie elsewhere – try to hitch themselves to an exciting but fast-moving train. There’s a chance that their extra weight might slow that train down. But to balance that, they bring experience of quality and regulation.

Further, the involvement of these monster institutions in the P2P market could be a sign that the general interest in crowd finance is swinging away from the disruptors towards a more traditional group of players. Is alternative finance about to become, simply, finance?

Undoubtedly, what it does do is increase the pressure on the innovators at the centre of the P2P space – Zopa, RateSetter, Funding Circle – who must continue to disrupt and keep up their pace of innovation, adventure and excellence, in order that they might stay ahead of the ever-growing chasing pack, and drive high standards across the entire industry.

If they are able to do that, the industry will progress, whether the big players trailing in their wake want to be a part of it or not.