P2P (peer to peer) lenders have been on the increase since late 2014. P2P lending has a long history in the USA and the UK, but it’s only recently arrived on our shores here in Australia. It involves borrowers taking out a loan with investors directly instead of going through a bank or other financial institution.
If you’re in need of a personal loan but you don’t want to give your money to a big bank, P2P could be an affordable alternative. Just be aware that they generally only offer small loans; you’re not going to be able to put your mortgage through a P2P platform. There aren’t any huge risks for borrowers in P2P lending, although there are some risks involved for investors.
Who offers P2P lending in Australia?
Here’s our list as at November 2015:
- SocietyOne (Australia’s first P2P lender, launched here in 2011)
- Ratesetter (launched November 2014)
- ThinCats Australia (launched late 2014)
- DirectMoney (launched late 2014)
- OnDeck (launched late 2015)
- Marketlend (launched December 2014)
- MoneyPlace (launching in mid-2016)
- Harmoney Australia (launching in early 2016)
ASIC Commissioner Greg Tanzer gave a speech in May 2015 about the benefits of P2P lending and other innovative methods of providing financial services, such as crowdfunding, digital currencies, and robo-advisors.
There are currently not any specially-designed regulations for P2P lending in Australia, because there are several different business models in operation, but P2P lending platforms must still be regulated by ASIC. There are several aspects of P2P lending platforms that are currently regulated by ASIC:
- Certification / Approvals: P2P platforms involving managed investment funds, credit facilities, and stock market trading all require different approvals. These approvals can already be obtained from ASIC without the need for a specific P2P regulatory approval system. ASIC is currently at work on their new innovation hub, which may also help streamline this process.
- Disclosure: Whether investors get a PDS or something else, P2P platforms must ensure that retail investors have a proper understanding of this type of investment before they sign up. This disclosure must be transparent about the key risks and benefits and explain clearly how the platform works.
- Advertising: Advertising of P2P products must not be misleading or likely to mislead, just like advertising for any other financial product. For example, advertising for P2P lending should not compare P2P lending products to a traditional banking product, because the risk of failed investment involved in P2P lending is much higher than for a traditional banking product.
When it comes to finding a competitive interest rate, P2P lending is quickly becoming a new option for borrowers. We, here at CANSTAR will be interested to observe how the market changes in years to come.