The peer-to-peer (P2P) lending sub-sector of crowdfunding seems to have many birthdays. Rarely can a sector have been hailed as "coming of age" quite so often. The latest to announce P2P's coming of age as an alternative asset class is the Financial Times.
Here are some excerpts from Helen Dunkley's piece in the FT this week end (subscription required – and recommended: quality journalism is very important in today's world of "alternative facts"): "Record-low interest rates have hit savers hard, but not all of them want to take the extra risk of putting their cash in the stock market.
'The conundrum has paved the way for peer-to-peer lending to emerge as a new asset class for investors wanting higher returns but with some more protection for their money.
"More than a decade after the first peer-to-peer sites launched in the UK, the sector that allows investors to lend directly to individuals and small businesses is coming of age...
"The rise of peer-to-peer sites means that lending, which as an asset class has been a monopoly for the banks, is opening up to ordinary investors.
"By lending through an online site to borrowers, ranging from businesses to individuals making a home extension, investors can achieve interest rates of around 6-7 per cent with a degree of certainty that their money will be returned.
"'The asset class is emerging, sitting between cash and shares,' says Rhydian Lewis, chief executive and co-founder of RateSetter. 'It's a useful new asset class for people to get more of a return on their money for taking a bit of risk.'
"'Peer-to-peer is coming of age; lending is up to £3bn now and certainly having the new ISA gives it much more credibility,' says Danny Cox of Hargreaves Lansdown, an investment broker and advice firm.
"But despite its rapid ascent, there are latent risks that threaten to dampen the attraction of peer-to-peer as an investment and stymie the sector's growth.
"A number of critics have been vocal about their concerns. Lord Adair Turner, former head of the City watchdog, warned last year about P2P sites' underwriting standards when lending to small businesses.
"Few P2P sites have experienced a turn in the credit cycle...
"In the past few months, the Financial Conduct Authority has raised concerns over certain parts of the P2P sector.
"One area that has come under scrutiny is the so-called safeguard fund, a pot of money aimed at protecting consumers if borrowers default. The FCA recently said some lenders had used it to "mask" the true performance of loans. The watchdog cited cases where P2P sites had used their own money to make payments on debt without telling investors the borrower was in arrears...
"While the regulator has formally approved some P2P sites, it is clear risks in the sector are still evolving."
P2P returns at Money&Co.
Money&Co. lenders have achieved returns of almost 9 per cent - before deduction of our one per cent fee - in the three years and nearly £10 million of loans facilitated on our platform.
We shall be posting new loan offerings on site soon. Meanwhile, our secondary loan market, offering existing loans for sale by lenders, is available to registered Money&Co. users. All loans can be held, tax-free, in an Innovative Finance Individual Savings Account, or Innovative Finance ISA.
If you haven't made a loan via Money&Co. before, please read the risk warnings and the FAQ section. You may also wish to consult a financial adviser before making an investment.