How do P2P platforms balance investor and borrower numbers?

New peer-to-peer platforms should put as much effort into attracting borrowers as they do promoting and obtaining inward investment, according to Kuflink.

But how difficult is it to achieve a perfect market equilibrium between borrowers and investors?

Stuart Law, chief executive at Assetz Capital, claimed: "A number of long-established peer-to-peer platforms have more investors than borrowers, meaning they have been closed to new investment, while the company tries to find more loans. 

“This is more common in consumer lending than business lending.”

In December 2016, Zopa temporarily stopped accepting new money transfers after reporting that the time taken to lend new money was – at the time – projected to be slow. 

What happens when there are more investors than borrowers? 

Platforms need to be able to deal with fluctuating demand from investors and borrowers

“When loan origination is high, it is obviously a benefit to have a large pool of existing and new lenders to fund loans, but if the rate of new borrowing drops, then this can be problematic for platforms with large lender populations,” said Mat Gazeley of Folk2Folk.

Stephen Findlay of BondMason added: “I think there is generally an oversupply of capital for the available investment opportunities, across most markets.”

Iain Niblock of Orca explained: “As the P2P market has grown in popularity, more and more investors have become attracted to the stable, attractive returns that P2P can offer. 

“The brand of ‘P2P’ generally and the brands of the top P2P platforms have become increasingly attractive to investors. 

“Borrowers, however, want quick access to capital at a low cost. 

“They are not sensitive to whether the funds are sourced from a traditional lender or a P2P platform. 

“The effect of reputation and brand is, therefore, not as important in the borrower market.”

How do platforms counteract this problem? 

business borrower
Should platforms focus on targeting borrowers?

“My view would be that many new platforms should concentrate as much effort on attracting borrowers as they do on promoting and obtaining inward investment,” said Narinder Khattoare, group operations director at Kuflink. 

“Investors in P2P should always look at the number of investment opportunities on offer by a potential P2P platform, as well as the claimed returns and the quality of the assets offered as security. 

“The danger is that in the absence of enough borrowers, some platforms could be tempted to compromise on the quality of the deals being placed on their platform looking for investment.”

RateSetter explained that its model was unique and that the rates on its platform were set by those who used it to lend and borrow.

“Rates rise and fall according to the supply and demand of money on our platform, so an oversupply of lenders would tend to push rates down,” a spokesperson for RateSetter told Bridging & Commercial. 

“That would mean that we can lend at more competitive rates, increasing the demand for RateSetter loans. 

“This in turn would cause rates to rise, and find a new equilibrium. 

“In this way, RateSetter’s market helps to maintain a healthy supply of lenders and borrowers on our platform.”

Mat added: “Platforms should really focus on their pipeline of loans and communicate well to existing customers, so they know that there will be a positive flow of loans to invest in. 

“Additionally, attracting new lenders across the UK means we are able to match local businesses with local investors as many Folk2Folk lenders want to invest in loans that are in their local community or wider county.”

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