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Peer to Peer Lending forecast to reach $22 Billion in Australia by 2020

7 September 2016

Peer to Peer Lending forecast to reach $22 Billion in Australia by 2020

Investment Bank Morgan Stanley in its global study of market place lending predicts that peer to peer lending in Australia is set to rocket to $22 billion within the next 5 years. The $22 billion estimate includes $11.4 billion in lending to small business and  $10.4 billion in consumer loans, which would represent 6% of consumer lending in Australia.

P2P lenders, who are increasingly being referred to as "marketplace lenders" to reflect increasing participation from institutions in funding of the loans, operate online lending platforms that are designed to match borrowers with investors, and deliver both parties more competitive interest rates than the traditional lenders.

Current levels of lending by the platforms is relatively low, with SocietyOne leading the way with it’s announcement in August that it had arranged $50 million in personal loans year to date. This level is nearly double the $26 million of new lending in the December half of last year, and 10 times the $5 million from the corresponding period of 2015. As a result of this growth, Society One CEO Jason Yetton said SocietyOne‘s total portfolio of outstanding personal loans was almost $100 million, or about 0.5 per cent of the $20 billion personal loan market.

SocietyOne was the first P2P lender to launch in Australia back in 2012. The consumer P2P lending market has now grown to 5 lenders including RateSetter, MoneyPlace, DirectMoney and Harmoney, with a 6th player Lendex set to launch in late 2016, whilst the Peer to Business is limited to just 2 providers, Marketland and ThinCats .

Morgan Stanley stated in it’s "Blue paper" of 2015, which received input from its Australian bank analysts Richard Wiles and Matt Dunger: "We believe there is an opportunity for P2P lending to establish a meaningful presence in Australia due to high online/mobile banking penetration, growing margins and high returns in unsecured lending and a highly concentrated banking industry focused on mortgages and deposits rather than on consumer unsecured (lending)."

The report went onto say that there was a strong precedent in Australia for banking disruption, as mortgage brokers had significantly forced a change in the structure of the mortgage market and compressed the margins that the banks  earn from their home loan books..

It pointed to an expansion in the margins the banks' consumer unsecured lending books by more than in any other major product segment since the financial crisis, and the lack of innovation in unsecured personal loans. It also said that the move towards more comprehensive credit reporting, with the advent of positive credit information, would help the P2P platform providers by allowing them to better assess borrowers' creditworthiness.

Some astute investors also believe Australia's banks will be slow to respond to the P2P threat. James Packer said when investing in SocietyOne in December 2015 that "banking is an area that has been largely un­dis­rupted" and "that doesn't make much sense given its profitability and margins".

He went on to say: “We have seen first-hand the power of technology in reshaping the media industry and I am excited about the potential of technology, led by the team at SocietyOne, to help reshape the financial services industry in Australia. We see enormous potential in delivering significant savings to borrowers as well as providing new innovative products that will also be attractive to the investor market. Peer-to-Peer lending is one of the global forces leading the transformation of banking by putting people, not intermediaries, at the centre of the borrowing and lending experience.”

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