Low-yield environment driving surge in P2P lending

The growing popularity of the P2P lending platform and its resulting strong growth reflects the broader trend of consumers and businesses questioning the role of the traditional banking system and seeking alternative solutions that meet their need.

Investors are looking beyond traditional asset classes in the hunt for better relative returns and this is leading to a surge in interest in peer-to-peer (P2P) lending, according to RateSetter, Australia’s first P2P lending platform open to retail investors.

The platform has issued figures showing strong growth in investor demand, with the number of Australian investors registered on its platform doubling over the last nine months.

“In the current low-yield environment, Australian investors are seeking out alternatives to volatile equities and low-return savings accounts and term deposits. Over the last 12 months, the value of the ASX200 has fallen more than 5%, eroding the value of many Australians’ investment and superannuation portfolios. Indeed a recent report found that over a five-year period, almost 70% of Aussie fund managers couldn’t match the returns of the index and over a 12-month period, 60% failed to do so. As a result, we are seeing an increase in investment amounts from retail and SMSF investors as they move money out of these underperforming asset classes,” said Mr Daniel Foggo, RateSetter CEO.

In addition to strong growth in new investors, analysis shows a substantial increase in average amount invested by RateSetter’s individual, SMSF and family trust investors.

“The amount that individuals are lending has increased to an average of $13,508 from $10,770 nine months ago, a considerable jump of 25.4%. We hear from investors that they are attracted by the compelling returns and lower relative risk, in particular the protection of their money afforded by our Provision Fund,” Foggo said.

“Our customers have also seen the average rate at which their funds have been matched to borrowers increase from 7.81% during the period September 2015 to February 2016, to 7.9% over the last nine months. This is a very compelling return in the current environment,” Foggo said.

SMSF investors have increased the amount they are lending to creditworthy borrowers to an average of $69,566 over the last nine months compared to $56,144 in the nine months prior (an increase of 23.9%).

SMSFs represent a growing proportion of RateSetter’s lender base and with around 62% of those investors lending in the platform’s five-year lending market, Foggo expects the segment to continue to grow.

“With returns in our five-year income market of up to 10% per annum, we foresee a surge in inflow from SMSFs over the next nine months, especially as these investors get a final opportunity to top up their super account with up to $1.5 million, before the government’s latest super wind back takes full effect and restrictions kick in,” Foggo said.

The P2P lending platform is also proving popular with family trusts. RateSetter data shows that two-thirds of these customers (66%) are lending in the five-year income lending market and the average amount loaned has increased by 43% to $71,397 over the last nine months compared to $49,759 in the nine months prior. Over this time, the average rate at which these investors’ funds have been matched to borrowers increased from 8% to 9.03%.

“This strong growth also reflects the broader trend of consumers and businesses questioning the role of the traditional banking system in providing value for money. With deposit rates languishing under 3.5% and consumer and business borrowing rates often over 14% per annum, Australians are now seeking an alternative. By cutting out traditional middlemen such as banks, P2P lending offers consumers and businesses a better deal, with borrowers paying less for finance and investors earning a fairer return.”

Inside Small Business