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Digital peer-to-peer finance lending set to hit £1bn in UK - corporates next?

FT reports that "The UK's peer-to-peer market has trebled in size in trebled in size in just three years, as online funding platforms exploit the gap left by banks retreating from lending, according to the first comprehensive into the £550m digital finance sector."

Could this happen in the corporate market?
It is not going to be easy. The Peer-to-Peer finance industry in the UK held a 'Peer-to-Peer Finance Policy Summit' in December 2012 at which they wrote an Open Letter to the EU policy-makers on the need for a clear regulatory framework. This is exactly what the banks asked for after the financing crisis in 2007/8, but all they got was Basel I/II/III which is anything but clear.

Yet on the web, peer-to-peer lending is almost a natural part of how people and businesses interact. They share data, information and views. Why not finance? Indeed, peer-to-peer was one of the alternative sources of finance in the UK's CBI report on 'Alternative Finance Report':

Source & Copyright©2013 - CBI

Large corporates
A treasury manager in a cash-rich large high-tech company which buys corporate bonds regularly commented, "In general, I do think this has its merits.  At this time, though, I do not think this fits our portfolio credit profile.  Maybe in the long term with a good dose of technology, the entire underwriting process in the bond market can dis-intermediate the broker dealers out of the business.  The obvious hurdles are the legal filings and the distribution, but as it was once said, 'build it, and they will come.' "

He continued, "Borrowers – This seems to be beginning with small businesses.  Depending on the profile of issuers whose credit you wish to take, these borrowers may not fit the profile of your portfolio. Also, these contracts may not be easier transferred.  The benefit of the bond issues is that there is an active secondary market so trading out of an issuer is made easy."

It is early days in the development of corporate peer-to-peer lending, and initially distribution will be a problem as the lender community will not be large, so it may be the borrowers will pay a higher interest rate than otherwise could be attained. Nevertheless, in the longer term, the large corporates are not ruling it out, particularly in the low-interest environment which will be around for many years, they will want higher returns on their spare cash.

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