Custodians missing out on peer-2-peer lending business

Global custodian banks have failed to take note of the growing Peer-2-Peer Lending (P2P) market, and there are concerns asset servicers could be missing a lucrative commercial opportunity.

P2P lenders are online platforms connecting borrowers with investors, with the latter collecting a fixed income interest payment. These web-based platforms are not saddled with the internal infrastructure associated with a bank, and can provide investors with an uncorrelated monthly return.

Data published by the Peer-2-Peer Finance Association (P2PFA), a UK trade body, found P2P lenders lent out more than £459 million in the first quarter of 2015, with cumulative lending now standing at £2.6 billion. This also represented a one third increase in lending over the previous quarter, added the P2PFA.

“Alternative financing through P2P networks is growing, and it is growing fast. I anticipate P2P lending will be a £1 trillion industry given its existing growth rates. However, the custodian industry is not involved in this market, and this needs to change,” said Dr Christopher Sier, co-lead at Finexus and managing director at KAS Bank, speaking at the Global Custody Forum in London.

P2P lending is rapidly growing in the US and has been for several years. This was evident with the Initial Public Offering (IPO) of Lending Club, the largest P2P lender in the US in December 2014.

A growing number of asset managers, attracted by the uncorrelated returns, are also buying into P2P lenders. A P2P investment trust – P2P Global – recently raised £400 million from its latest C share issue. Marshall Wace acquired 90% of Eaglewood Capital Management, a New York asset manager with a focus on P2P loans. Marshall Wace acquired Exchange Associates, another P2P lender in 2013.

Nonetheless, some market participants are sceptical of P2P lenders, pointing out there is a lack of regulatory oversight, and that this could see some platforms providing risky loans.