The end of P2P finance?

I was really surprised to see the announcement by Zopa this week that they were pulling out of P2P (peer-to-peer) lending. As the company that started the FinTech P2P lending and FinTech buzz imho, how could they?

I was angry and annoyed, and then remembered something:

Following consultation, the Financial Conduct Authority (FCA) is introducing rules designed to prevent harm to investors, without stifling innovation in the peer-to-peer (P2P) sector. When the FCA set its first rules for P2P, it committed to keep these under review as the sector evolved. These new rules are designed to help better protect investors and allow firms and fundraisers to operate in a long-term, sustainable manner.

That was June 2019.

Since then, most P2P lenders in Britain have closed. Ratesetter was acquired by Metro Bank in 2020 and now Zopa, the original, has closed for P2P business.

It irks me but it appears to be a mixture of market movements. It’s not the same as China, where most P2P lenders went bust, but it’s all about stability and security. The issue is that those requirements for stability and security have made opening and running a P2P account so difficult that it’s not worth doing. In other words, the regulations have made it so difficult for customers, that customers can no longer be bothered.

I see this in many areas of finance and life. For example, I was trying to order a day 2 Covid test for travelling to the UK the other day, and the form to be completed was so long and complex I gave up. That’s just for a Covid test. Imagine what you have to do to open a bank account?

Thing is, if that is the thing, why did it take the regulators ten or twenty years to catch up? P2P lending in the Zopa model began way back in 2005.

I’ve observed and been around this market ever since. For me, along with payments transformations from PayPal and more, P2P has been the heartbeat of FinTech. So, the end of P2P lending is a thing.

“After careful consideration, we have decided that the best way forward is the sale of all retail investor portfolios at full value. This will lock in the interest earned by Investors so far and ensure the timely return of their money. To make this as smooth as possible, Zopa Bank will be buying the P2P loan portfolio and P2P customers will receive their investment balances back by the end of January.”

Zopa Chief Executive Jaidev Janardana

You know, I think there’s something else happening here. I think what’s happening is market movements. Markets have moved. Specifically, I think that people willing to invest in P2P lending have dried up. There’s plenty of borrowers but no investors. Result? There’s no money to lend, even at 5 percent or higher interest rates.

This is purely my supposition, but I’m watching lots of markets right now. The biggest surge has been in cryptocurrencies, and the biggest losses have been in old firms. Old firms like old banks, old retailers, old airlines, old media. Even though Zopa, Ratesetter, Lending Club and others are not old firms, their model is not made for a pandemic. That’s the issue.

In a pandemic, what we’ve seen is people running to safety and opportunity. Safety? Look at the price of oil. Opportunity? Look at the price of bitcoin (December 8 2019 £5,712, today £38,070).

I guess the implosion of P2P lenders is reflected by this pandemic. They started with optimism, grew with hope, flourished with connectivity and died with a pandemic.

RIP P2P guys. I hope you come back.