[avatar user=”angus” /]

Ernst & Young’s Item Club has upgraded its forecast for UK domestic product growth from 2.5% to 2.9%. Almost contemporaneously the IMF has cut its forecast for global growth by 0.3% and left its expected growth rate for the UK unchanged at 2.7%. Good news for the UK, if these forecasts turns out to be correct.

Forecasting for the UK economy is almost the fool’s errand that predicting the British weather is. However in a globalized world and one in which our nearest neighbours and largest market for our goods and services are probably about the embark on quantative easing driving sterling higher and making their locally produced goods cheaper, it seems unlikely that we will be unaffected by this. And still less that we can grow faster than others when we rely so heavily on them for our growth.

There’s also what might be termed a micro economic problem too. Capita Asset Services suggest that FTSE 100 companies are hording rather than investing cash. In October 2014 there was £53.5Bn in cash on their balance sheets, an increase of some £16.5Bn. The BofE report for 4Q14 shows demand for lending in medium sized companies once again exceeded supply. For companies to grow there needs to be confidence, which it doesn’t appear some of the largest companies in the UK have and companies need working capital, which is not being provided in sufficient quantity.

Of course HMG is doing its best to build confidence, with some success and is helping with the working capital. The AltFi companies are also helping with working capital, but the industry has a very long way to go to replace what has been lost from bank lending.

[avatar user=”Ian Anderson” /]

As the P2P industry has matured, a new class of investor arrived aggressively in 2013 and included the very institutions that P2P was meant to bypass, the Banks. In the US big financial firms, not small investors, are now dominating lending on the two biggest leading platforms, Prosper and Lending Club.

At Prosper, which has been aggressively courting institutional lenders over the past year, more than 80 percent of the loans went to those firms in the last quarter. Lending Club and Prosper now set aside a randomly selected pool of loans for institutions which prefer to swallow up whole loans rather than finance a piece of them, meaning 100s or millions of dollars and pounds have now been lent from banks.

But why do they want in?

Ageing and creaking Bank technology with outdated risk models has significantly held back banks in recent years. Their ability to widen their offering and effectively manage the decision making process is further bottlenecked at branch level with inexperienced staff.

Banks recognise that the technology of P2P platforms and their innovative risk analysis, often using ‘big data’, gives them a fast way to lend without the investment in their own technology or increasing their overheads. P2P is also transparent, investors are matched to risk appetite and all risks are known up front with no hidden fees – quite frankly it’s surprising to this author that it has taken them so long to get involved.

One thing is for sure, Banks will come to dominate the future of P2P lending and it’s just one reason why in the US the sector now refers to itself as Marketplace Lending to better reflect this seismic shift in investor.

Tag: banks

Contradictory Signals

Why Banks want in on P2P Lending