Major study into economics of peer-to-peer lending published

An independent assessment of the economics of the peer-to-peer lending sector undertaken by economic consulting firm Oxera has been published.


The study was commissioned to inform debate through an in-depth investigation of how P2P lending works and associated public policy issues. The evidence-based report analyses the risks, costs and benefits of peer-to-peer lending and provides an objective account of how P2P business models work. The study focused on the eight member platforms of the P2PFA, which collectively comprise over seventy-five per cent of the UK market.


The evidence provided in the study shows that:

  • peer-to-peer lending has created additional competition and choice in the market for loans and investment;
  • peer-to-peer lending provides a new option for retail investors, opening up access to risk-and-return from an asset class of consumer and business loans with net returns of between four and eight per cent;
  • platforms conduct credit-risk assessments using industry best practice and deliver outcomes consistent with those of traditional lenders;
  • platforms are incentivised to manage credit risk well because borrower defaults result in the loss of ongoing servicing fees (which comprise a significant proportion of a platform’s income);
  • platforms provide levels of transparency which empower investors to assess performance against expectations;
  • peer-to-peer lending does not create systemic risk, and platforms are well-placed to weather a downturn in the credit cycle – borrower defaults would need to increase at least threefold to reduce average interest rates to investors below zero; and
  • the current regulatory framework is proportionate and targeted, though opportunities to strengthen the regime exist in some areas.


The study also found that most retail investors have a good understanding of the risks of peer-to-peer lending, including capital and liquidity risk, as well as the importance of diversification. High levels of transparency provide access to significant amounts of information. Ensuring that investors are able to make the most meaningful use of this information will continue to be a priority.


The Chair of the Peer-to-Peer Finance Association, Christine Farnish said: ‘This landmark study into the economics of P2P lending provides important insight into the state of the market in the United Kingdom, and also addresses concerns which some have expressed about the understanding of investors, the business models of platforms and the regulatory framework. The Report provides clear evidence on the robustness and resilience of the sector. We hope it provides a useful input to policy-makers and regulators’.


She continued: ‘the Report emphasises the crucial importance of ensuring that retail investors are well-informed – particularly as the number of those participating expands – as well as making sure that platforms themselves undertake sound credit-risk management and adhere to high standards of business conduct. Whilst P2PFA member platforms are required to commit to unrivalled levels of transparency and robust operating principles, it is clear that the regulatory regime has scope for further development so as to ensure that exemplary levels of confidence can be maintained for this increasingly significant part of the alternative finance landscape’.


Reinder van Dijk, Partner from Oxera, added: ‘P2P lending has been a real innovation in the market for credit, bringing benefits to both borrowers and investors. The existing regulatory regime in the UK has been successful in enabling the P2P market to develop to where it is today. As the sector continues to mature, regulation will need to evolve alongside it to ensure consumers continue to achieve the benefits made possible by this new model’.




Notes to Editors

  1. Peer-to-peer lending – regulated by the Financial Conduct Authority since April 2014 – involves direct matching of funds between investors and borrowers through an on-line platform. Investors range from retail consumers to institutional investors as well as the government. Borrowers range from consumers, small businesses, property developers and buy-to-let. Peer-to-peer lending platforms are able to match investors and borrowers directly for a fraction of the cost of traditional financial services entities, providing benefits to customers on both sides of the transaction.
  2. The Peer-to-Peer Finance Association (P2PFA) was established in 2011 as a representative and self-regulatory body for debt-based peer-to-peer lending. The P2PFA seeks to inform and educate, promote high standards of business conduct, and work with policy-makers and regulators to ensure and effective regulatory regime. P2PFA members are required to meet robust standards for the transparent, fair and orderly operation of peer-to-peer lending, and the eight member platforms comprise more than seventy-five per cent of the total UK peer-to-peer lending market. These platforms are: Funding Circle, Landbay, Lending Works, Lendinvest, Market Invoice, RateSetter, Thin Cats and Zopa.
  3. Oxera advises companies, policy-makers, regulators and lawyers on any economic issue connected with competition, finance or regulation. Oxera has been doing this for more than three decades, gathering deep and wide-ranging knowledge as we expand into new sectors. Oxera has a reputation for credibility and integrity among those we advise, and among key decision-makers, such as policy-makers, regulators and courts. With offices in Berlin, Brussels, London and Oxford, Oxera are able to advise our international clients in a highly-flexible way, including providing advice in several languages.
  4. Copies of the report can be accessed at the P2PFA website,, and at the Oxera Consulting website:


Robert Pettigrew (Director: Peer-to-Peer Finance Association):

e-mail –; telephone: 07771-547462


2016.10.09 – PressNotice – Major study into economics of Peer-to-Peer lending published

2016.09.30 – Oxera report – The economics of P2P lending