2,531 crowdsourcing and crowdfunding sites
Editor’s Note: This article comes to us from Alex Gowar, the CMO of peer-to-peer finance company RateSetter. It appears exclusively on Crowdsourcing.org.
Recent indications suggest that the peer-to-peer lending industry in the United Kingdom is nearing its tipping point. The sector is servicing a universal need and developing innovative, vibrant business models to compete against each other. But why now? And what’s driving the tip? Here are five key reasons why we might be about to see explosive growth in this disruptive sector.
The overarching context of banking and financial services has been turned on its head since 2008; as one commentator put it, “the banking crisis destroyed the myth that big equals safe.” Customers are looking for alternative options for both emotional and practical reasons: the all-important trust that is required in financial services eroded quickly, while borrowing and savings rates have also parted ways. On top of the average customer’s disdainful attitude to traditionally poor customer service, the role of the high street bank is being challenged at every turn: savers want better returns, investors prefer to self-invest, and borrowers want to shop around and compare.
A pivotal moment in the life of peer-to-peer arose in August 2011 when the U.K. Peer-to-peer Finance Association was formed to bring in minimum standards and a code of conduct. The outside world took notice. In March 2012, Bank of England director Andy Haldane suggested that peer-to-peer lending “could in time replace high street banks.” Senior regulators in the U.K. voicing approval of the disruption of traditional banking was unexpected but welcome, as was more recent news that the U.K. goverment itself is considering lending peer-to-peer to provide a boost to small businesses. The U.K. government approves of the industry’s voluntary move to self-regulate and official regulation is moving up the regulatory agenda.
While the U.K. was the birthplace of peer-to-peer lending, a further raft of compelling and varied business models have emerged in the last two years. A consumer can now lend peer-to-peer, peer-to-business, business-to-business, business-to-consumer, even peer-to-payday — and, of course, crowdfund a startup. These new models and approaches are providing a diverse and competitive landscape for consumers to choose from, and ensuring players are continuing to innovate new technologies and approaches.
Like any new technology, there is an adoption curve for peer-to-peer lending; the big challenge is to make the leap from early adopter to mainstream audience. The context outlined above has ensured the sector has enjoyed an unusual amount of exposure to the limelight. The kind of rates that both borrowers and lenders can expect to achieve from the “Big Three” of Zopa, RateSetter, and Funding Circle mean that financial journalists are beginning to get under the skin of the various models and players. Proof? This week, a full-page feature in The Sun, the biggest daily newspaper in the U.K.
As a quick test, put on a borrower’s hat, and check the rates on a mainstream loan price comparison site such as moneysupermarket. More often than not, a peer-to-peer lender will top the charts in terms of rate, and with the promise of no early repayment charges, rapid decisions, and rapid access to funds for borrowers.
The U.K.’s new generation of crowdsourced businesses is creating best of breed products, unencumbered by the legacy of traditional banking margins and approaches. Coming from an online world, the focus is on leaner, smarter models that disrupt the way traditional organisations have approached real world finance.
Alex Gowar is the CMO of RateSetter, one of the U.K.’s fastest-growing peer-to-peer finance companies. RateSetter launched in October 2010, introducing a simpler and safer approach to peer-to-peer by creating a “Provision Fund” concept that protects lenders from bad debt. RateSetter has loaned over £25 million so far, and with its Provision Fund now over £500,000, the company has returned every single penny of capital and interest to every single lender.