P2P lending has been heralded as the "Uber" of
finance. In our app based world, convenience is key, and just as
Uber matches people looking for a ride, P2P lending platforms match
people who have money to invest with people who are looking for a
The role of P2P platforms is threefold:
To provide a facility to enable investors and borrowers to come
together outside traditional lending models;
To assess potential borrowers' credit worthiness on behalf
of investors; and
Administer the loans.
Not all P2P platforms work the same way. Some platforms allow
potential investors to pick their borrowers, while others require
investors to lend across the P2P platform's portfolio of
borrowers. Some platforms have a protection fund, which borrowers
are required to contribute to, and are designed to compensate
lenders exposed to loans that have defaulted.
There is no doubt that P2P platforms are an exciting new
financial product breeding healthy competition with the big banks.
Some of Australia's biggest names, including James Packer and
Kerry Stokes, have backed one of Australia's leading P2P
startups, SocietyOne. Investors are keen to get on board and mimic
the Lending Club, the first P2P platform in the United States (set
up 8 years ago) which became the 14th largest "bank" in
the US with a US$9 billion valuation after its December 2014
initial public offering.
WHAT ARE THE BENEFITS FOR INVESTORS AND BORROWERS?
The benefits to investors involved in P2P lending include:
The interest rates on investment are higher than if the funds
were deposited in a bank;
Limited exposure to default as investors contribute small
amounts across various loans to different borrowers; and
P2P platforms disclose the lending risk at the time of the
investment by assessing the borrower's credit rating allowing
investors to make informed decisions.
The benefits to borrowers using P2P platforms include:
Lower interest rates compared to traditional banks; and
Simple procedures for smaller loan amounts (usually up to
Ultimately, both investors and borrowers benefit from the simple
structure, as the P2P platforms themselves only make a profit from
fixed arrangement fees, not from the interest charged to the
HOW ARE P2P PLATFORMS REGULATED IN AUSTRALIA?
P2P platforms are becoming more popular in Australia. The P2P
platforms have taken various approaches to fitting within the
existing regulatory regime, with most being structured as managed
This is because a P2P platform is a facility through which a
financial investment is made, therefore, it is required to hold an
Australian Financial Services Licence. In addition, as P2P
platforms offer credit, they also require an Australian Credit
Licence and need to comply with AML/CTF requirements, as well as
requirements under the Privacy Act 1988 (Cth).
These regulatory requirements are quite onerous and costly.
However, considering P2P platforms are hugely reliant on an
assessment of borrower's credit rating, a benefit of complying
with the managed investment scheme framework is that it ensures the
P2P platform (and investors) thoroughly understand the credit
rating of potential borrowers.
THIS VIEW IS SUPPORTED BY SocietyOne, WHO STATED:
"We don't believe the
current regulatory framework is a barrier to P2P models. On the
contrary we believe that regulatory framework provides appropriate
protection for consumers and guidance for P2P
However, there is concern that by "fitting in" to the
existing managed investment scheme framework there is a risk that,
at some point in future, ASIC will make a determination that such a
model is not appropriate and either prohibit P2P lending altogether
(as it currently operates,) or make more onerous regulations.
ASIC's current position is that, as P2P platforms have
chosen to operate within the managed investment scheme framework,
they are appropriately regulated. Accordingly, ASIC has indicated
that it has no plans to prescribe specific regulations. It is
interesting to note, however, that in October 2014, New Zealand
began issuing specific P2P lending services licences. By regulating
P2P lenders under their own category of licence, the New Zealand
authority is well placed to rapidly respond to changes in P2P
SO WHAT DO WE THINK?
Some P2P platforms in Australia will be pushing for a more
bespoke regulatory regime in order to reduce the heavy compliance
provisions that managed investment schemes are subject to, as well
as achieve acknowledgment that P2P lending is recognised in
As Australia moves forward into this somewhat unchartered
terrain, it will be interesting to see if, much like Uber, P2P
lending receives its own legislative backing, or whether it will be
forced to fit, somewhat clumsily, into the existing regulatory
framework of financial products.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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