Competition between marketplace lenders will be fierce as COVID-19 will strengthen established players, says GlobalData

Tightening of regulations and a likely upcoming recession will increase investor caution and turn consumers to traditional banks and building societies, according to GlobalData, a leading data and analytics company.

*GlobalData’s 2020 Financial Services Consumer Survey (time period – one year, collected in January 2020 with sample size of 400) shows that when UK consumers suffer financial hardship, over 50% are likely to turn to traditional banks and building societies due to the trusted reputations they have and security they offer their customers.  

Mohammed Hasan, Banking and Payments Analyst at GlobalData, comments: “The inability to gain a return on savings during this time, as payment holidays are extended to businesses is likely to have lenders return to traditional savings products that offer them stability and assurances so that they may stay loyal for long term period.”

Businesses that have lost access to capital from retail lenders are likely to have gained access to institutional investment or government-backed schemes such as the Coronavirus Business Interruption Loans Scheme and Business Bounce Back Loans to acquire the capital they need. These are changes in financing structure that could persist long term.

Hasan continues: “As we emerge from this period, competition from marketplace lenders is likely to be fierce, and price competitiveness will be key to acquiring lost customers and business. Such competition will favor institutional investors and further enhance the shift away from the Peer-to-Peer (P2P) model.”

Consumers are likely to turn away from P2P lenders, who have benefitted from the low interest rates since 2008. The UK’s Financial Conduct Authority (FCA), which has regulated the sector since 2014, has recently introduced stricter rules.

Hasan concludes: “Arguments surrounding increased profitability appear a more plausible explanation for the decision to leave the P2P sector. Consequently, the last six months have seen the likes of ThinCats, Landbay, and Harmoney close services to retail investors. Their retreat has, however, signaled competitors such as Squirrel to double down on the P2P model, stating that they were making it both easier and more accessible for retail investors to get better returns, in the hope of acquiring retail investors left behind.”

*GlobalData’s 2020 Financial Services Consumer Survey (time period – one year, collected in January 2020 with sample size of 400)

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