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Oxera report - The economics of peer- to-peer lending

Today, Oxera, a leading global economic research organisation, published a comprehensive review of the UK peer-to-peer lending (P2P) market. The review, from this independent consulting firm, provided a ringing endorsement of the economics and practices concerning the P2P industry.

The exhaustive and evidence-based report, which focused on the eight platforms comprising the membership of the industry body, the Peer to Peer Finance Association (P2PFA), was commissioned in order to provide an assessment of the risks, costs and benefits associated with P2P lending, with a view to informing debate and offering an objective assessment of platforms’ business models.

The key findings of the Oxera report included:

  • Peer-to-peer lending has created new competition in the market for loans and investment, improving the financial services available to consumers
  • Retail investors can expect returns in excess of four to eight per cent 
  • Platforms are transparent, offering sound information such that investors are able to make meaningful assessments of performance against expectations
  • Platforms follow best practice for credit-risk assessment consistent with traditional lenders
  • P2P lending does not create systemic risk, and platforms are in a good position deal with a downturn. Borrower defaults would need a threefold increase in order for investors to start losing money
  • Current regulation is both proportionate and targeted, although there are some sensible ways to improve the regulatory regime
  • Investors have a good understanding of the risks involved

Such conclusions are especially significant in light of a period in which the sector has attracted some negative publicity. While we as a sector welcome scrutiny, and accept that criticism within the media comes with the territory, the Oxera report has addressed many of these concerns, and in doing so has unequivocally refuted many of the points.

A copy of the report can be downloaded here: Oxera Report - Economics of peer-to-peer lending

Nick Harding, founder and CEO of Lending Works, commented:

“It is with great delight that we acknowledge the findings of the Oxera report today. As an industry, we initially enjoyed something of a honeymoon period within the media, but, subsequent to peer-to-peer lending’s meteoric rise, there has predictably been a shift, with the voices of a few sceptics becoming slightly louder.

“Certainly, we embrace all forms of scrutiny and welcome input from all quarters – positive or negative. That said, we do hope that where people have feedback for our industry, it is based upon facts not hearsay. The findings from the Oxera report, all based upon facts, provide a resounding stamp of approval on the business models we adopt, our processes, the levels of regulation and compliance we adhere to, and, most importantly, real benefits we are delivering to consumers.

“We will not be resting on our laurels, and, as P2PFA members, we will continue to further our commitment to transparency and putting the customer first. However, consumers can now feel vindicated in their choice to turn to peer-to-peer lending as a means to improving their financial position.”

One of the hallmarks of the sector has been its often self-imposed levels of regulation and compliance. Indeed, the P2PFA itself is an industry-formed body, which sets out a strict set of operating principles to which its members must adhere.

Underlying such an embrace for regulation is the desire to enhance credibility, and with authorisation from the Financial Conduct Authority likely to be gained in the near future, Lending Works – and the wider peer-to-peer lending industry, looks set to be propelled into the mainstream of consumer lending and investing.

Reinder van Dijk, Partner from Oxera, added:

“P2P lending has been a real innovation in the market for credit, bringing benefits to both borrowers and investors. The existing regulatory regime in the UK has been successful in enabling the P2P market to develop to where it is today. As the sector continues to mature, regulation will need to evolve alongside it to ensure consumers continue to achieve the benefits made possible by this new model.”

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Michael Todt

Mike joined Lending Works in early 2015 with a background in marketing and journalism. Having long held a passion for economics, he is now the chief contributor to the Lending Works blog, and regularly writes about all things peer-to-peer lending, fintech and personal finance.