Buoyed by dissatisfaction with the banks and an enduring ‘lower for longer environment’, peer-to-peer lending is proving a popular alternative for investors.
The practice involves matching creditors with borrowers, so that investors can lend their money at an interest rate independent of the banks.
Australian P2P lender RateSetter chief executive Daniel Foggo says growing inflows show investors are fed-up with traditional lending.
“By cutting out traditional middlemen such as banks, P2P lending offers consumers and businesses a better deal, with borrowers paying less for finance and investors earning a fairer return,” Mr Foggo said.
Over the last nine months, the number of Australian investors registered on the RateSetter platform has doubled, Mr Foggo said, adding that it’s no surprise given current volatility.
“Over the last 12 months the value of the ASX200 has fallen more than 5 per cent, eroding the value of many Australians’ investment and superannuation portfolios.
In addition, a recent report found that over a five-year period almost 70 per cent of Aussie fund managers couldn’t match the returns of the index and over a 12-month period, 60 per cent failed to do so. As a result, we are seeing an increase in investment amounts from retail and SMSF investors as they move money out of these underperforming asset classes,” he said.
Over the last nine months, the average amount lent to borrowers has increased by around 25 per cent, with SMSFs now lending an average of $69,566, according to RateSetter.
The SMSF market, which makes up nearly two-thirds of users, is likely to remain the core market for this type of investment, with the platform forecasting continued growth in the sector.
“We foresee a surge in inflow from SMSFs over the next nine months, especially as these investors get a final opportunity to top up their super account with up to $1.5 million, before the government’s latest super wind back takes full effect and restrictions kick in,” Mr Foggo said.
[Related: Aussie fund manager bets big on P2P lending]