Will Covid-19 accelerate the lending market’s digital revolution?

Many will agree that the changes prompted by the Global Financial Crisis of 2008-09 led to the birth of what later became known as FinTech. By blending finance and technology, FinTech entrepreneurs were able to offer users the possibility to invest their spare change after grabbing a cup of coffee, help finance affordable housing projects, or build an investment portfolio, among many other fantastic innovations. But one digital innovation instigated by the traditional bank’s reluctance to lend was to become a chief game-changer: P2P lending.

P2P lending, the ability of multiple investors to co-invest together and lend to one single borrower on a project, has since become a key financial tool and an asset class in its own right. According to P2PMarketData, a platform that tracks P2P lending across several markets, P2P lending platforms in the UK have so far provided total funding of £17 billion to their borrowers. According to this data, P2P property lending platform Blend Network saw the largest growth in lending on a 90-days comparison, an astonishing 315% increase, and seven out of the seventeen platforms tracked saw growth rates above 100% over the past 90 days.

Covid-19 has certainly provided an opportunity for P2P lending platforms to show their worth. Platforms such as Blend Network sit at the intersection of personal finance, technology and social responsibility, connecting experienced property developers who build low-cost homes with people who want to invest. At the heart of everything, P2P lending platforms are supporting those who find themselves disconnected from traditional funding channels, while helping those millions of savers who have been getting penalised by a decade of near-zero interest rates on cash deposits. Investors come from all walks of life; some are high net worth investors who invests tens of thousands of Pounds, and some are private investors who invest £1,000. Yet, they all share a passion for doing well while doing good, for making a difference by co-investing in projects that help developers build affordable homes.

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At a time when unprecedented Government debts are likely to keep interest rates low for the foreseeable future, we believe that Covid-19 and the changes instigated by the pandemic will indeed accelerate the lending market’s digital revolution. This is due to three reasons.

First, investors are looking for yield, and increasingly looking for alternative sources of yield outside traditional equity and bond assets. The recent volatility in the equity markets and seeming disconnection between the stock markets and the real economy has further added to investors’ appetite for alternative sources of yield.

Second, P2P property lending has come of age as an alternative asset class in its own right with a very diversified and loyal investor base that includes institutional, retail, family offices and HNW investors, and over the past few years have been slowly but steadily wooed not only by the returns, but also by the flexibility that this product offers.

Third, traditional banks, already reluctant to provide development finance before the Covid-19 pandemic struck, are likely to have even less appetite for that type of lending following the crisis. Consequently, SME property developers and small construction companies are finding themselves in an even harder position to access funding and turning to alternative lenders.

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