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Why lead investment is critical to the future of P2P finance 

Tarlochan Garcha, CEO, Kuflink

There’s no denying the significance of peer-to-peer lending (P2P) as a disruptive force revolutionising the traditional practices that underpin the UK’s financial landscape. One only needs to look at the growth of the market over the past five years to understand the impact it is having on businesses, investors and consumers – UK P2P lending is anticipated to grow at a 45% five-year compound annual growth rate, reaching £16 billion by 2020. This is impressive given the volume of loans originated by UK P2P lenders in 2015 was£2.4 billion.

Tarlochan Garcha

Tarlochan Garcha

Such an unprecedented rate of accelerated growth begs the question – how can the industry maintain this momentum? To answer this question, it is important to understand just how investors are planning to incorporate P2P investment into their future financial strategies, and determine what the industry can do to ensure a robust and dynamic UK alternative finance market for years to come.

Perhaps the most pressing topic on every UK investor’s mind is the potential impact of Brexit on the UK economy, private sector growth and their investment portfolio. Britain has entered a period of significant transition as it prepares to forge a new future independent of the European Union (EU). Following the snap General Election and the appointment of a minority Conservative government charged with leading Brexit negotiations, the unfolding two-year negotiation period will inevitably affect how investors manage their financial strategies.

Research by Kuflink recently revealed that over a third (34%) of investors believe that Brexit has already impacted their investment plans more than any other political event in their lifetime. Moreover, nearly two-fifths (38%) of investors are currently favouring safe-haven investment classes such as property at this present time.

These figures should not set alarm bells ringing;however, it reveals an investor population that is slightly more hesitant in their financial planning in light of contemporary political events. So what can the industry do to ensure that P2P lending remains at the forefront of investors’ minds? To catalyse future movement, P2P platforms should not rest on their laurels. Instead, they must look to exciting new models that appeal to the sentiments of investors during this unfolding period of change – the platforms themselves adopting the role of the lead investor is a standout example of this.

By acting as the lead investor and ensuring they have their own‘skin in the game’, the platform can instil confidence and movement from private investors. This is something Kuflink has embraced by investing a lead 20% stake on all deals made on our platform, meaning that in the unlikely event that a borrower was to default, Kuflink would lose its stake before any investors are affected – this, in turn, provides investors with the security and reassurance to confidently invest.

Looking to the future, I have no doubt that the UK will remain at the forefront of P2P innovation. Nevertheless, the existing strengths which allowed for P2P platforms to responsively cater to the changing demands of the market cannot be overlooked. The industry must embrace its versatile qualities and willingly look to new models that encourage deal flow and maintain the momentum required for P2P to prosper over the coming years.

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