New P2P lenders must stand out.
I am an Analyst specializing in the Retail Banking sector, having joined Datamonitor Financial in 2011. I have authored ...
Read full bio
New entrants into peer-to-peer (P2P) lending need a unique selling point to attract lenders and borrowers, who otherwise will go to one of the larger established platforms.
The rapid growth of the P2P lending industry has encouraged new P2P platforms to enter the market. A total of six P2P lending platforms launched in the UK in 2012, with five having launched so far in 2013 and another three expected to come to market before the end of the year. The challenge for new entrants is to differentiate themselves in an industry dominated by a small number of big players.
P2P platforms offer the same basic service: providing an online space where people with money can meet people who need money. Additional services include running credit checks on borrowers and providing a protection fund to guard against loan defaults. Zopa and RateSetter, two of the biggest P2P lending platforms, run almost identical basic services. However, they can continue to compete because they have the biggest pools of lenders and borrowers.
To acquire lenders and borrowers, new entrants to P2P lending need to offer something that sets them apart from the large incumbent players, such as offering interest-only loans, greater flexibility, or improved speed of access to loans. Alternatively it may involve offering a service that existing players do not. For example, Mayfair Bridging, which launched in January 2013, solely focuses on offering bridging finance. Another new entrant, Folk2Folk, offers a community-based approach to P2P lending. Folk2Folk specializes in facilitating loans to local businesses from local investors. It also has a branch, which differentiates the firm from its online-only rivals.
New entrants will continue to enter the P2P lending market, encouraged by the low barriers to entry and rapidly growing lending volumes. However, in order to survive, they will need to stand out.