Despite a shrinking market for personal loans and credit card debt, the nascent peer-to-peer sector is posting strong growth as customers seek out cheaper alternatives to banks and investors chase the returns on offer.
SocietyOne will on Monday report its total loans arranged since it launched in 2012 have exceeded $300 million, with new lending in the first half of 2017 up 67 per cent on a year ago.
SocietyOne chief executive Jason Yetton said institutions and wealthy investors were keen to lend over the P2P platform. Photo: Michel O’Sullivan
Rival P2P lender RateSetter has also funded about $130 million of loans since its inception in late 2014, according to its website, a figure that has roughly doubled since December.
The growth, while off a very low base, stands in stark contrast to the declining value of outstanding personal credit – a key target market for peer-to-peer firms.
Latest RBA figures show personal credit shrunk 1.4 per cent in the year to May, while the total value of credit card balances attracting interest also contracted by 2.3 per cent in the year to May.
P2P lending is where individuals bypass banks by directly lending their money to borrowers via an online platform, offering lower interest rates to borrowers than through personal loans.
SocietyOne chief executive Jason Yetton said demand from both borrowers and its institutional and wealthy investors who funded the loans had also been strong in the half.
“Growing interest from borrowers and investor funders over the past 12 months is proof that our proposition of offering a better deal than the major banks and providing investors attractive risk-adjusted returns is making a real different in the marketplace for personal loans,” said Mr Yetton, a former senior banker at Westpac.
Another marketplace lender competing for personal loans and credit card debt is ASX-listed DirectMoney. While it has not disclosed latest loan growth figures, chief executive Anthony Nantes said investors and consumers were “rapidly understanding” the greater efficiency of direct lending via a platform that cut out the role filled by banks.
To be sure, P2P lenders still have only a tiny share of the overall personal credit market. But the differing growth patterns between P2P and overall personal credit may in part reflect customers moving away from higher cost forms of borrowing.
While P2P’s growth has been fast in recent years, some senior bankers have questioned how the industry will fare when interest rates rise – which could make other forms of investment more attractive, as well as pushing more borrowers to default.
P2P is one part of the financial technology, or “fintech”, sector that would stand to gain from government moves to force banks to make it easier for customers to share their credit data, a move that was flagged in the budget.