What is peer-to-peer (P2P) lending?
Peer-to-Peer lending enables investors to lend funds directly to borrowers via an online platform. Retail investors access a platform to provide loans to consumers or small business borrowers. Whilst platforms facilitate the lending, undertake credit assessments and other risk management, they do not act as a counter-party to the loan, and contracts are direct between the investor and the borrower.
For borrowers, P2P brings additional choice and competition in the lending market. Interest rates offered are typically at least as good as rates on loans provided by banks and other lenders, but customer service levels, speed and responsiveness are acknowledged to be significantly better.
For investors, P2P lending provides a new investment choice, with levels of risk and return that sit between lower-risk/lower-return banking savings accounts and higher-risk/higher-return equity investments (including equity crowdfunding, which is generally regarded as representing a higher risk than peer-to-peer lending).
What is the Peer-to-Peer Finance Association (P2PFA)?
The P2PFA was established in 2011 as a representative and self-regulatory body for peer-to-peer lending in the United Kingdom. The P2PFA seeks to inform and educate, promote high standards of business conduct (primarily through the P2PFA’s Operating Principles), and work with policy-makers and regulators to ensure an effective regulatory regime.