The perils of P2P lending

P2P lending sold itself as a simpler alternative to traditional banks, but it’s grown increasingly complex. Now the FCA is worried that with complexity comes risk.

Peer-to-peer (P2P) lending has grown rapidly since the first platform, Zopa, opened in 2005. Since then, the industry has made over £8.7bn in loans, with the three biggest platforms Zopa, Ratesetter and Funding Circle lending over £1bn each, according to AltFi Data.

The idea behind P2P lending is that borrowers and lenders come together without the need for traditional banks. Businesses and individuals who cannot easily get mainstream funding are lent money by savers who earn much higher interest rates than they can get by putting their money in a savings account. However, since its inception, the industry has grown increasingly complicated; a sector that sold itself on simplicity and transparency is becoming more and more complex and the providers are becoming more like traditional lenders. Indeed, Zopa is now applying for a banking licence, so it can offer fully protected deposits along side its P2P products.

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Ben Judge

Ben studied modern languages at London University's Queen Mary College. After dabbling unhappily in local government finance for a while, he went to work for The Scotsman newspaper in Edinburgh. The launch of the paper's website, scotsman.com, in the early years of the dotcom craze, saw Ben move online to manage the Business and Motors channels before becoming deputy editor with responsibility for all aspects of online production for The Scotsman, Scotland on Sunday and the Edinburgh Evening News websites, along with the papers' Edinburgh Festivals website.

Ben joined MoneyWeek as website editor in 2008, just as the Great Financial Crisis was brewing. He has written extensively for the website and magazine, with a particular emphasis on alternative finance and fintech, including blockchain and bitcoin. 

As an early adopter of bitcoin, Ben bought when the price was under $200, but went on to spend it all on foolish fripperies.