Online Lenders Will Be Just 1% of Market in 2025, Deloitte Says

  • Marketplace lenders’ U.K. share could be as little as 1%
  • Funding model of banks is ‘powerful’ advantage, report says

Britain’s bank chief executives can sleep easy. Peer-to-peer lenders are unlikely to dent their dominance of the loan market over the next decade, according to Deloitte LLP.

Online platforms connecting investors directly with consumer and commercial borrowers will probably account for about 1 percent of the 600 billion pounds ($874 billion) of total lending by 2025, according to the accounting firm. They could gain as much as 6 percent of the market if banks don’t innovate and the Bank of England keeps its key interest rate near a record low.

The rise of marketplace lenders such as Zopa Ltd. and Funding Circle Ltd., armed with nimble technology, has threatened to erode the dominance of Britain’s largest banks, disadvantaged by crumbling computer systems and tougher capital requirements. Even so, banks are advantaged by a low-cost funding model from customer deposits that will prove “even more powerful” when interest rates rise, according to Deloitte.

“Contrary to a number of commentators, we do not see marketplace lenders as a major threat to banks in the mass market,” Neil Tomlinson, head of U.K. banking at Deloitte, said by e-mail. “Whilst banks are yet to replicate the benefits of the marketplace model, we believe it is only a matter of time before they use their size and scale to overtake and sustainably under-price MPLs.”

Fewer Rules

Marketplace lenders probably accounted for about 2.7 billion pounds of lending in the U.K. and 669 million euros ($750 million) in Europe last year, dwarfed by $23 billion in loans in the U.S., according to Liberum, AltFi Data and Deloitte analysis. The 6 percent share of the British market would bring lending to consumers and small-and medium-sized businesses to as much as 35.5 billion pounds by 2025, according to Deloitte.

While the peer-to-peer platforms, which don’t take deposits, don’t face as many regulations as the U.K.’s largest banks, this may change as they become more important to the financial system, the accounting firm said. Banks are likely to work with or acquire some marketplace lenders and adopt their best practices to maintain the status quo.

“Unlike banks with legacy systems, MPLs use modern technology, streamlined processes and innovative risk scoring that can make it quicker and easier to get a loan,” Ian Foottit, a banking partner at Deloitte said by e-mail. “While MPLs look unlikely to grow sufficiently to displace banks, banks can benefit from adopting some of their best practices.”

A crash in the stock prices of U.S. marketplace lenders On Deck Capital Inc. and LendingClub Corp., whose Chief Executive Officer Renaud Laplanche resigned after an internal review into its practices, is raising “renewed questions” over the peer-to-peer business model, Ronit Ghose, an analyst at Citigroup Inc., wrote in a research note on Friday.

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