P2P lenders take advantage of Australia's weakened big banks

Growing customer dissatisfaction could act as a springboard for their debut.

Peer-to-peer (P2P) lending and investing platforms are expected to gain ground in Australia as the country’s incumbent lenders still reel from the results of a powerful inquiry that laid bare decades of corporate malpractice, according to research platform GlobalData.

The boom in P2P lenders can be traced back to the ruins of the great financial crisis of 2008 which saw a proliferation of the business model in the UK and the US who were hardest hit by the crisis but never gained momentum in Australia or New Zealand except in key niches like SME lending.

However, market conditions are now prime for new players to take over especially since customers are looking for alternatives to their existing banking providers amidst deteriorating bank satisfaction. “Times are changing though. The negative publicity from the Royal Banking Commission, the higher rates and lower appetite for lending among the big banks – driven by APRA’s macro-prudential tightening – as well as the RBA’s rock-bottom policy rate are recreating the conditions for a market opening,” Andrew Haslip, Financial Services Analyst at GlobalData said in a statement.

Also read: Foreign banks flock to Australia as local lenders reel from damning probe

And they could just be heavy competition. For borrowers, the rates on offer at the P2P lenders are increasingly attractive relative to traditional banks. There is also incentive for investors to lend via platforms as average deposit rates stand at 2.2% as of end June.

“The market conditions are in place for P2P lenders and other new financial providers like neobanks. And these conditions should persist until well after the Banking Commission’s final report in February 2019, with the next six months being the most crucial,” added Haslip.