Awareness of marketplace lenders high with consumers and SMEs, but take-up remains low
24 August 2016
Despite 53% of UK* consumers being aware of marketplace lenders (MPLs), just 4% of this group have borrowed from one and only 5% have lent, according to Deloitte’s UK research, Marketplace lending: A temporary phenomenon. A YouGov survey for Deloitte, the business advisory firm, shows that only 7% of UK consumers aware of MPLs would borrow from an MPL in future, while only 13% would lend.
For small to medium sized enterprises (SMEs) in the UK, awareness is higher, at 76%. Of those in this group, only 4% have borrowed and just 3% have lent. Eight percent of SMEs aware of MPLs said they are likely to borrow in future, twice the proportion of those who previously borrowed from an MPL.
MPLs are online platforms that enable investors to lend to retail and commercial borrowers. MPLs do not take deposits or lend themselves; as such they do not take any risk onto their balance sheets. They make money from fees and commissions received from borrowers and lenders. Unlike banks with legacy systems, MPLs use modern technology, streamlined processes and innovative risk scoring that can make it quicker and easier to get a loan. MPLs have grown rapidly in recent years, lending a total of $23bn in the US, £2.7bn in the UK and €669m in continental Europe**.
Ian Foottit, banking partner at Deloitte UK, said: “Our UK research paints an interesting picture around consumer and SME attitudes to MPLs. Consumers who had borrowed through MPLs were equally attracted to the customer experience as they were to the rates on offer. Those likely to borrow in future are drawn to MPLs’ competitive interest rates above all else. SME borrowers, on the other hand, said the convenience of an online platform was particularly attractive.”
Neil Tomlinson, Deloitte UK head of banking, said: “There are some challenges for MPLs to overcome, if they are to take a larger market share. Consumers told us that trust, familiarity, and security concerns keep them from borrowing from MPLs, while the possibility of losing money deterred them most from lending through MPLs. For SMEs, it is the lack of a relationship that puts them off borrowing through an MPL. More broadly, our research shows that total funding costs for banks are lower than for MPLs, and the interest rate-sensitive component of an MPL’s funding profile is higher than that of banks. On that basis, MPLs’ costs could rise by more than banks as the credit environment normalises and interest rates increase.”
Tomlinson continued: “Despite the challenges, MPLs do have an opportunity to carve out a niche market and can do so by exploiting their market-leading user experience and boosting word-of-mouth recommendations. These benefits could decrease customer acquisition costs, making MPLs a more viable option. As more MPLs become fully authorised by the FCA, issues surrounding trust and security could lessen. In turn, we may well see banks become more open to partnering with them to enhance their overall customer proposition.”
Notes to editors
* All figures, unless otherwise stated, are from YouGov Plc. Total sample for the consumer survey was 4,296 (weighted to all GB adults aged 18+), and for the SME survey this was 1,671 (weighted to all SME senior decision makers). Fieldwork was undertaken between 12th - 20th January 2016. The survey was carried out online.
**Figures according to Liberum, AltFi Data and Deloitte analysis.
In this press release references to Deloitte are references to Deloitte LLP, which is among the country's leading professional services firms.
Deloitte LLP is the United Kingdom member firm of Deloitte Touche Tohmatsu Limited (“DTTL”), a UK private company limited by guarantee, whose member firms are legally separate and independent entities. Please see www.deloitte.co.uk/about for a detailed description of the legal structure of DTTL and its member firms.
The information contained in this press release is correct at the time of going to press.
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