P2P lending’s next era - Alternative Credit Investor

UK peer-to-peer lending has grown significantly and proved itself during a turn in the cycle, but what does it need to do to expand further into the mainstream?

The UK peer-to-peer lending industry has grown significantly since it first emerged as a real contender, stepping in as banks pulled back their lending capital. A vacuum was created and the industry flourished in front of us, showing people there were new ways to access the finance they needed, as well as greater opportunities to invest. Data released last year found that the UK P2P lending market’s total revenue hit a new high of £398m in 2024, quite something given this was £20.2m in 2013!

However, P2P is still viewed as an alternative and to some extent it always will be. Some critics say the P2P has yet to break through into the (financial) mainstream. I disagree with that, but I do think more can be done to build on the already incredible success the P2P lending sector has achieved in the UK and to broaden this out to a wider range of investors and borrowers alike.

Giving the people what they want

Like anything, for P2P to resonate with a larger audience it needs to meet their needs and wants. That requires a broader range of products but this can be a challenge given the regulatory restraints put upon us. All the checks and balances in place may be off-putting for new customers but ultimately, these are for their protection. If you want to protect your consumers, you need to operate in the regulated market.

However, there are other levers in our control and technology is a prime example. This has already been a big driver of platform growth and this is something we can look at, such as exploring how we can use extra data points beyond credit scores to support decisions better. One thing we’re not looking at, but others are, is the use of blockchain technology. This has started to play a role with some loans even tokenised and run on smart contracts, which makes everything even more transparent and efficient.

Technology can also help us improve things from a customer experience perspective. People expect quick, seamless customer service and financial services is no exception. Therefore, we can continually explore ways to minimise friction for new customers. At Kuflink a big focus for us is identifying ways we can make everything much more efficient.

A clear proposition

The clearest and simplest propositions are often the most successful. Within financial services, and faced with a huge amount of choice, consumers like to be able to easily compare and contrast different options. This is one of the reasons online comparison sites have become so popular, with people able to bring up options very quickly for them (home insurance, motor finance etc) which lay out all the information they need to then proceed with a purchase.

Unfortunately, P2P lending is not as simple to access. The fragmented nature of our industry means it’s challenging to gain an overall view of all the platforms, comparing and contrasting what these offer. Again, regulatory constraints can be difficult to work with here and P2P platforms have to abide by a multitude of rules concerning how they operate and communicate with customers. However, there is no guidance about how P2P should be explained to customers or the kind of language that should be used. Even a simple comparison table – unbiased and from a reputable source – would be very helpful in educating new consumers. Anyone interested in P2P would very quickly get the lay of the land, understand how different platforms operate and then likely be more willing to proceed. That’s a major piece of the puzzle missing for P2P.

Newcomers need to have trust in platforms, and clearer communication – including full transparency on risk and performance – is crucial to this. The industry needs to show consistency. Mainstream investors want to see steady returns and platforms that are robust enough to handle changes in the economy, not just when times are good. That also means improving credit checks and having strong systems in place for dealing with defaults. It needs to integrate better with the wider financial world. If P2P platforms are more closely linked with banks, investment platforms or pension products, it becomes easier for people to see it as part of their normal investment mix. So, in short stronger trust, proven stability, and closer integration with the rest of finance is what will help P2P fully step into the mainstream.

It’s also important to recognise that there is only so much in the P2P industry’s control. Many people are put off from investing or engaging with wider financial services because they have a lack of understanding about how it works. People see “high risk” investment warnings and they can quickly run a mile. To that end, P2P also suffers from the wider public’s lack of financial knowledge.

An exciting time

I haven’t written this piece to be a naysayer of P2P. I’ve spent my career in finance and though I’m relatively new to the P2P world, having joined Kuflink earlier this year, it’s already very clear to me that exciting things are happening in this space.

The space has grown and matured, with platforms becoming increasingly sophisticated and continually reaching a broader range of customers which is evident in the statistics around how the sector is growing. The innovative finance ISA was arguably a real watershed moment for P2P, benefitting from the household name recognition of the ISA wrapper.

There are a lot of positives there and anyone working in P2P knows this, but this is an important time to push on. The sector has recorded great growth in recent years but there is still a huge amount of opportunity out there. I would really like to see a company emerge that can provide a comprehensive competitive dataset for the P2P market, as this would go a long way in strengthening investor confidence. I’m excited to see what the industry does next and where P2P goes from here.

This is commercial content, produced in partnership with Kuflink.