Peer-to-peer lending is a US$3bn global industry, but has been slow to get off the ground in Australia, mainly due to regulatory restrictions. But, with the regulators easing their grip, it’s now reached our shores – and the banks have a lot to lose.
Peer-to-peer lending – where you borrow money directly from another individual through an online intermediary, but bypass the banks – is riskier than traditional lending but the industry’s growth worldwide has been explosive (see below).
Peer-to-peer lenders advertise lower interest rates and higher levels of customer service than ordinary banks, and investors gain access to higher yields and flexible commitments. However, the money invested isn’t covered by the Government’s deposit guarantee so isn’t as safe as a traditional deposit.
Should the banks be worried? Westpac (ASX:WBC), Commonwealth Bank (ASX:CBA), ANZ (ASX:ANZ) and NAB (ASX:NAB) account for just over 80% of all lending in Australia. What’s more, personal loans and credit cards make up around 16% of their collective retail bank profits.
With roughly $2bn at stake, the banks have clear reasons to fight for the status quo. Westpac, however, will actually benefit from a little industry disruption because its $50m venture capital fund, Reinventure Group, made a $5m investment in Australia’s first peer-to-peer lender, SocietyOne, earlier this year. Having made just $4m in loans as of March, the company is still in its infancy but it’s off to a good start.
The big four have loan books of over a trillion dollars, meaning Australia’s peer-to-peer lending industry still only represents less than 0.00001% of total lending. It’s too early to tell whether it will be the ‘industry disruptor’ some make it out to be but, with a lock on customers so strong they’re among the most profitable banks in the world, we doubt the big four have much to worry about yet.
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