Are We Seeing a Paradigm Shift in the Perception of P2P Lenders?
There is no doubt that peer-to-peer (P2P) lenders have faced a certain amount of criticism within the UK markets during the past few years. Some claims have been erroneous while others were entirely unfounded. However, we may be starting to see a paradigm shift in regards to the ways in which such companies are viewed. One interesting example can be seen in the recent comments made by former P2P opponent and financial regulator Lord Adair Turner. How has his position changed, why has he backtracked on several perspectives and what could this signify for the peer-to-peer lending industry as a whole?
A Pronounced Reversal
In February 2016, Lord Turner claimed that P2P lenders were far worse than even the most inept bankers and that the sector may be responsible for massive losses in the future. Not surprisingly, many large lenders such as Zopa immediately jumped on his remarks. They claimed (and rightfully so) that they had been active within the online lending industry for the better part of a decade with few negative results. They also highlighted consistently low default rates as well as their excellent levels of customer service and transparency. Although it appeared as if the damage had already been done, Lord Turner has begun to change his tune.
Interestingly enough, this former hawk seems to have dramatically toned down such a position. He recently stated that online peer-to-peer lenders may be able to perform credit underwriting “as well as established banks and also aspire to offer better customer services” (1). Why has his stance changed so much?
Better Informed Statements
Lord Turner himself claims that his reversal is partially the result of the copious amount of research that he has performed between February and the present. The stir that he previously caused led him to learn more about the industry and therefore, he is inclined to offer a more balanced perspective. He was under the impression that a borrower could simply turn up and “ask for money” regardless of credit history or current financial situation. He failed to appreciate the risk analyses that many creditors perform as well as the stringent terms and conditions of the loans themselves. He is now more confident in regards to the efficacy of such services.
Still, this is not a complete 180-degree turn. He has nonetheless observed that some peer-to-peer lenders were less than scrupulous with their activities and loses would inevitably occur. The major difference is that he now believes that such losses will comprise a small portion of the entire sector. Lenders are undoubtedly happy to hear this although we still must wonder if they fully accept his somewhat late apology.
More Than Meets the Eye?
Although Lord Turner has certainly changed his position, we are left to wonder if this is due to other factors. One could even go as far to observe that the domestic prospects for a post-Brexit United Kingdom have come into play. Peer-to-peer lending can add much-needed liquidity into the regional economy as well as provide tens of thousands of jobs. Might these two factors have played a slight role in his recent statements? The increasing popularity of tax-free individual savings accounts should also be mentioned here.
Regardless of his motivations, the recent reversal by Lord Turner should add some much-needed momentum into the P2P lending sector. Regulations have also tightened, so this will also help to limit potential losses as well as some of the unscrupulous activities that occurred in the past. We are now left wondering whether or not other respected government officials will take a similar stance.
Tim Aldiss writes for Shadow Foundr – don’t just follow the crowd, follow experienced investors.