SAVERS are more likely to place their cash in the fledgling online peer-to-peer (P2P) lending industry when it comes under stronger regulation next year, a survey has suggested.
One quarter of people said they would consider loaning money in this way after new tough regulator the Financial Conduct Authority (FCA) takes charge of overseeing P2P lenders from next spring.
The research, which surveyed more than 2,000 people and was conducted for Leeds-born P2P lender rebuildingsociety.com, also suggested that around 17 per cent of people would currently consider loaning money through a P2P lender, before the changes come in.
P2P lenders, also known as person-to-person lenders, act as middle men who match up lenders and borrowers.
A consumer who saves money with a P2P firm is in effect lending their cash to someone at the other end of the chain.
The interest savers receive comes from the rate paid by a borrower, with P2P lenders making their money by taking a cut.
Daniel Rajkumar, managing director at rebuildingsociety.com, said the research indicated that the P2P industry is “well on the way to entering the financial mainstream”.
He added: “The FCA’s regulatory oversight from next year will provide consumers with an additional layer of protection and our study shows this is very likely to boost take-up.”
Some potential interest rates from P2P lenders compare well with the high street at a time when savers are struggling to find accounts to give them real returns on their money.
However, savers tend to be taking a bigger risk than they would be with high street banks, in that people investing with P2P firms are not protected by the Financial Services Compensation Scheme (FSCS), which guarantees up to £85,000 of their cash if their financial institution goes bust.
The FCA, which has powers to act more proactively and step in quickly to protect consumers, will oversee peer-to-peer lenders when it takes over regulation of the consumer credit market next April.
The P2P industry has welcomed the move as a “watershed moment” to help it to flourish as an alternative to high street banks. The Government has said that finance provided through P2P middle men should be an “appropriately protected” investment activity, regardless of whether the lender is a consumer or a company.
There are no immediate plans to bring P2P lenders under the scope of the FSCS, although the situation is being kept under review and a further consultation covering the P2P industry will take place later this year.
The sector is currently overseen to some extent by the Office of Fair Trading (OFT), which keeps an eye on the debt management side of the industry.
Firms in the P2P industry do not need a licence to be a lender because they do not lend their own money. Rebuildingsociety’s study also found that a lack of consumer awareness about the P2P industry is currently holding back stronger growth. A knowledge gap about what P2P lending entails was given as the main reason why people would not invest, followed by a fear of borrowers not paying the loan back.
Mr Rajkumar said: “The evolution of this market will continue to generate value for borrowers and lenders beyond the financial transaction. It can be viewed as a marketing activity and businesses who borrow through P2P lending have effectively won a crowd of stakeholders with an interest in the success of those businesses.
“This is more powerful than institutional finance and both parties are slowly adjusting to this mindset.”
Others in the P2P marketplace include Funding Circle and thincats.com.