Your guide to peer to peer lending

New Peer to Peer Lending Association Launches in the UK

by Peter Renton on August 15, 2011

UK Peer to Peer Finance Association logo

The UK continues to be a trailblazer when it comes to p2p lending. Zopa, the market leader in the UK, was the very first p2p lender to come online, launching in 2005. Today, the three largest p2p lenders in the UK (Zopa, RateSetter and Funding Clircle) announced the formation of the UK Peer to Peer Finance Association.

This new trade association has been setup to ensure that the sector “maintains high minimum standards of protection for consumers and small business customers.” They have been quite clear about the reason for the timing of the formation of this association. Over the next 18 months the UK government will be working on new regulations for the finance sector, so they want to make sure their voice is heard.

Not All P2P Lenders Invited to Join

The UK has a vibrant p2p lending environment with at least seven companies in operation by my count. But only the three largest companies have banded together to form the association. They have indicated that other companies are interested in seeking membership but there are certain minimum standards that have to be met.

These standards are spelled out in their Rules, By-laws and Operating Principles documents. They cover minimum capital requirements, segregation of funds, fair complaints handling, clear marketing messages, clear bankruptcy procedures, and much more.

Why I Think This is a Great Idea

Pretty much every industry has its own trade association. We live in a world that gives weight to such organizations and their mere existence gives some implied legitimacy to an industry. New investors and borrowers are understandably skeptical when they first hear about p2p lending. A membership association could help with that somewhat. I think it would also raise the bar for new companies looking to enter the space. And it would provide a unified voice when lobbying the powers that be.

I also like the fact that the three largest competitors have put aside their differences and are actively working to grow the p2p industry as a whole in the UK. Having an umbrella organization like this will help ensure that all members do what is in the best interests of the industry not just what is in their own best interests.

Not Happening in the U.S. Any Time Soon

There is a high barrier to entry for p2p lenders in the U.S. Prosper launched over five years ago and apart from Lending Club there have been no other significant players enter the industry during this five year period. Sure there are some companies looking to compete (such as Peerform) but for an average investor there are really only two options.

The SEC registration requirement has certainly stifled competition in the U.S. So with only two companies there is hardly a need for an association today. But if the laws are changed or more companies manage to enter the fray then a trade association will be a logical next step.

I will be watching the progress of the Peer to Peer Finance Association in the UK. I hope and expect that it will help move the industry forward there.



{ 9 comments… read them below or add one }

Dan B August 15, 2011 at 4:15 pm

I think that the bottom line here in the US or anywhere in the world for that matter is profit potential or rather perceived profit potential. Regulations are of course a barrier, but I’ve never met a hungry business entrepreneur who let regulations deter him from doing what he thinks is a huge money maker.

Peter Renton August 15, 2011 at 5:14 pm

@Dan, That may be true. But there is a big difference between an entrepreneur having to raise $100,000 and $5 million. Any hungry entrepreneur should be able to come up with $100,000 but $5 million? That is much more difficult but it is really the minimum I think a company needs to launch a service that competes directly with Lending Club and Prosper. And this is why I believe we still only have two major players in the p2p lending industry in this country.

Shawn August 15, 2011 at 6:42 pm

Wasn’t there supposed to be Loanio as well? Do we know why they never exited their “quiet period” which I believe is still on their page? They seemed to have some good ideas with co-borrowers and whatnot.

Also, I think competition would be good, but don’t think it can, or should, happen until the market takes off. Hopefully we’ll reach that tipping point as I think that also can happen, and once the idea enters the general awareness it will be better for everyone. Though, I just don’t see the type of mainstream marketing that can get it there yet (which would be a benefit of an association)… maybe one of them can splurge a couple mil on a super bowl commercial. =)

Prosper lender “shawnw2″

Peter Renton August 15, 2011 at 8:33 pm

@Shawn, Loanio launched in October 2008 just as Prosper was shutting down. They originated a total of 7 loans before entering a quiet period, so I would not call them a major player. I wrote a blog post about them here:

I think when Lending Club or Prosper start showing healthy profits then, as you say, a tipping point will be reached and I imagine there will be lots of startups. Although I don’t think either company is well funded enough to be able to blow seven figures on a Superbowl ad.

Dan B August 15, 2011 at 11:39 pm

Peter………..I’m going to take a guess & say that you’ve never asked anyone outside of family for money. Because the odd truth is that you’ll get a lot of serious people hanging up on you or showing you the door if you asked for $100k. It’s much easier to get an audience if you ask for $5 million.

Joji August 16, 2011 at 5:17 am

I think this is good move. Only one thing bothering me that how can they miss UK 2nd launch p2p lending website . Their is some sort of lobbing done down the table by these 3 companies.

Peter Renton August 16, 2011 at 9:27 am

@Dan, I agree that if you are trying to raise money from outside angels then $100K is going to be tough. I would think a hungry entrepreneur would use a combination of personal savings and loans/equity from friends and family. Failing that then there is always the credit card advance or of course a p2p loan. So overall, I still maintain that raising $100,000 is a lot easier than raising $5 million although I have no data to back this up.

@Joji, From what they say on their site the association was launched with the three biggest UK p2p companies. Obviously companies, like Yes-secure, Quakle, Big Carrots and Thin Cats are going to be disappointed not to be included. But it sounds like they can apply for membership and if they meet certain criteria will be accepted.

Simon Dixon August 17, 2011 at 11:40 am

Thanks for sharing this great write up.

I will be launching in the UK this year, so hope that the big three feel there is room for a number four.

I’ll touch base and see what happens.

Simon Dixon

Peter Renton August 17, 2011 at 11:47 am

@Simon, Look forward to hearing about your venture. As p2p lending grows I think there will be room for many players in the UK. Best of luck with your launch.

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