The UK continues to be a trailblazer when it comes to p2p lending. Zopa, the market leader in the UK, was the very first p2p lender to come online, launching in 2005. Today, the three largest p2p lenders in the UK (Zopa, RateSetter and Funding Clircle) announced the formation of the UK Peer to Peer Finance Association.
This new trade association has been setup to ensure that the sector “maintains high minimum standards of protection for consumers and small business customers.” They have been quite clear about the reason for the timing of the formation of this association. Over the next 18 months the UK government will be working on new regulations for the finance sector, so they want to make sure their voice is heard.
Not All P2P Lenders Invited to Join
The UK has a vibrant p2p lending environment with at least seven companies in operation by my count. But only the three largest companies have banded together to form the association. They have indicated that other companies are interested in seeking membership but there are certain minimum standards that have to be met.
These standards are spelled out in their Rules, By-laws and Operating Principles documents. They cover minimum capital requirements, segregation of funds, fair complaints handling, clear marketing messages, clear bankruptcy procedures, and much more.
Why I Think This is a Great Idea
Pretty much every industry has its own trade association. We live in a world that gives weight to such organizations and their mere existence gives some implied legitimacy to an industry. New investors and borrowers are understandably skeptical when they first hear about p2p lending. A membership association could help with that somewhat. I think it would also raise the bar for new companies looking to enter the space. And it would provide a unified voice when lobbying the powers that be.
I also like the fact that the three largest competitors have put aside their differences and are actively working to grow the p2p industry as a whole in the UK. Having an umbrella organization like this will help ensure that all members do what is in the best interests of the industry not just what is in their own best interests.
Not Happening in the U.S. Any Time Soon
There is a high barrier to entry for p2p lenders in the U.S. Prosper launched over five years ago and apart from Lending Club there have been no other significant players enter the industry during this five year period. Sure there are some companies looking to compete (such as Peerform) but for an average investor there are really only two options.
The SEC registration requirement has certainly stifled competition in the U.S. So with only two companies there is hardly a need for an association today. But if the laws are changed or more companies manage to enter the fray then a trade association will be a logical next step.
I will be watching the progress of the Peer to Peer Finance Association in the UK. I hope and expect that it will help move the industry forward there.