“Peer-to-peer lending is growing fast in many countries. In Britain, loan volumes are doubling every six months.” (The Economist, March 1st, 2014)

Peer to peer finance, i.e. p2p lending to consumers, p2p lending to businesses and crowdfunding, is definitely growing very quickly, and is attracting a lot of attention – from the finance industry, but also consumers.

My intuition however was that it is still very small compared to traditional finance, and I wanted to know the real figures.

Before jumping to the figures, remember that it is challenging to compare a very mature industry vs. a new market. For example, we should ideally dive into net and gross lending figures – but they are the same for peer to peer finance because there are no repayments yet !

The two largest and fastest growing markets for p2p finance are the US and the UK, and we will look at both.

P2p finance vs. traditional finance in the UK

Traditional finance :

– Loans to consumers : £16bn new unsecured loans in 2013 (excluding credit cards) 1
– Loans to SMEs : £40bn new loans in 2013 2
– Venture Capital : £1.4bn investments in 2012 3


Peer to peer finance :

– Peer to Peer lending : £287m new unsecured loans in 2013 4
– Peer to Business lending : £193m new loans in 2013 4
– Equity crowdfunding : £28m investments in 2013 4

which gives us the two following graphs

p2p vs traditional finance - UK

The graph above clearly shows that in the UK, Venture Capital is very small vs. lending to SMEs and individuals. SME lending is around £40bn per year, unsecured consumer lending 3 times less, and venture capital 40 times less. Peer to peer finance is minuscule on that scale.

p2p vs traditional finance - Ratio UK

From the graph above, we can see that peer to peer finance represents less than 2% of traditional finance in all categories – with a better penetration for equity crowdfunding and consumer p2p lending vs. lending to businesses.

P2p finance vs. traditional finance in the US

As you will see, the figures for the US are very different from the UK.

Traditional finance :

– Loans to consumers : $196bn unsecured loans in 2013 (excluding credit cards, but NET number and including student loans) 5
– Loans to SMEs : $60bn new loans in 2013 6
– Venture Capital : $30bn investments in 2013 7


Peer to peer finance :

– Peer to Peer lending : $2.4bn new unsecured loans in 2013 8
– Peer to Business lending : No meaningful activity
– Equity crowdfunding : $100m investments in 2013 9

p2p vs traditional finance - US

Please note that this graph cannot be directly compared with its UK equivalent because Loan to Individuals is NET (and not gross). Also, US numbers are distorted by student loans that represent 2/3 of unsecured loans. We can note however the much bigger importance of venture capital in the US vs. the UK. In other words, unsecured consumer lending is around $200bn per year, SME  lending 3 times less, and venture capital 6 times less.

p2p vs traditional finance - Ratio US

The figures shows a slightly smaller penetration for p2p lending to individuals in the US vs. the UK. But the striking difference is the absence of p2p finance for SME loans, while equity crowdfunding is also very small.

Conclusion

P2p finance  has taken between 0 and 2% of market share vs. traditional finance, which is still small. However, with growth rates sometimes exceeding 100%, this is clearly a disruptive sector that will have an impact on lending markets.

Regulations will clearly have a very important impact on the development of p2p finance – witness the slower development of equity crowdfunding in the US because of the requirements on accredited investors. Based on the current regulatory environment, the UK – with its light touch regulation on p2p finance – could witness a faster growth than the US.

 

1 BBA Statistics, High Street Banking, January 2014 Statistics
2 Bank of England, Trends in Lending, October 2013
3 Nesta, Unchaining Investments, June 2013
4 Nesta, The Rise of Future Finance, December 2013
5 New York Fed, Household Debt and Credit Report, February 2014 (This is a NET number, not GROSS)
6 Federal Reserve, Survey of Business Lending – E2, Quarterly reports 2013 (Loans under $1m)
7 National Venture Capital Association, 2013 Year End Press Release, January 2014
8 Lend Academy, P2P lenders 2013, January 2014
9 Equity Crowdfunding, Top 10 Equity Crowdfunding Platforms by the Numbers, November 2013