ASIC reveals Australian marketplace lending has doubled in size since 2015/16

Elizabeth Barry 15 December 2017

p2p loan

Australians borrowed $300 million from P2P lenders in 2017.

A survey conducted by the Australian Securities and Investments Commission (ASIC) has shown that our marketplace lending market is growing. The survey results, which looked at the marketplace lending activities of 12 lenders, showed $300 million in loans written to consumers and small- to medium-sized enterprises (SMEs). This is nearly double the $156 million recorded in ASIC's 2015/16 survey.

ASIC Commissioner John Price said the survey results show the sector is maturing.

"This survey helps ASIC to better understand and regulate these businesses and to identify areas to monitor in future. We are very appreciative of the participation of survey respondents."

The growth of the sector may have something to do with how ASIC has let it progress. ASIC hasn't shown its hand too much with marketplace lending, preferring instead to let the market grow and innovate. In March 2016 it released a regulatory factsheet for lenders which detailed the risks involved in the space, the obligations for lenders, advertising concerns and best practice examples.

In its report for this week's survey, it noted that "Marketplace lending providers are generally subject to regulation by ASIC" and that it had "continued to undertake surveillance work in relation to some marketplace lending providers’ compliance with the Corporations Act and the ASIC Act". Much of this was in relation to concerning advertising material and inadequate disclosures about risks in marketplace lending.

However, Australians are obviously embracing the new way to borrow. But it seems the type of borrowers has remained consistent; the number of borrowers nearly doubled from the previous year but the proportion of borrowers have remained consistent with the 2015/16 survey. Consumer loans represent over 80% of the total amount borrowed and also close to 99% of the total number of loans.

The average age of consumer borrowers was 41, which was the same as in the previous year's survey.

Borrowers are also receiving a range of interest rates. The average interest rate was 10.5% p.a. for loans entered into during 2016/17, which the report said was expected as "there were a small number of loans with considerably high interest rates". Compared to standard unsecured personal loans from banks this is still relatively competitive.

Always a point of interest for marketplace lending is default rates, as this is one of the risks for investors. The average default rate for the survey period was 2.2% which was an increase of 1.6 percentage points from the previous year's survey. However, this was lower than what ASIC predicted the default rate to be for this year: 2.9%.

When asked to predict their default rates for 2017-18, the expected average rate was 2.4%.

Overall, the report showed a maturing market with no major red flags. ASIC noted that its surveillance "highlighted instances of non-compliance... in relation to advertising and promotional material and disclosure documents for marketplace lending products" but this has been raised with the relevant providers.

ASIC plans to continue to survey the market lending providers it regulates as well as continue to assess licencing applications for the providers in the sector.

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