Major Australian banks are in for some fierce competition from smaller financial institutions, according to a report from the US-based firm Morgan Stanley. According to the company, peer-to-peer (P2P) lending platform loans will swell to $22bn over the next five years, forcing traditional financial institutions to speed up investments in new technologies. P2P lending, commonly referred to as “marketplace lenders”, is a newly available form of borrowing. With the inception of the internet and other computing technologies, a new market place as emerged where individuals can lend directly to one another, cutting out the traditional middlemen.
Morgan Stanley believes that Australian consumer loans through P2P lending will constitute up to $10.4bn alone and capture up to 6 per cent of total consumer lending in Australia. The report cited the “well timed” investment decision by media moguls James Packer and Ryan Stokes to fund Australian P2P leader SocietyOne. According to the bank, SocietyOne and competitor RateSetter have lent less than $25m so far. MoneyPlace, a third P2P lender, is set to launch soon. “We believe there is an opportunity for P2P lending to establish a meaningful presence in Australia due to high online/mobile banking penetration,” Morgan Stanley analysts said in a report.
The toughest hill to climb for new P2P lenders is acquiring new customers and offering competitive interest rates. Traditional banks have an institutional advantage by securing deals through consumer-facing companies like Qantas, Woolworths and Coles. Morgan Stanley also noted that the new lenders would face regulatory scrutiny by the Australian Securities and Investment Commission, which could severely limited the growth for these kinds of marketplace models. Despite the projected success of this new form of lending, the US bank believes financial institutions will be “largely undisrupted” in the medium-term.
Author: Simon Herrmann
May 22, 2015
Simon is a financial analyst at independent research firm Wise-owl specialised in small-mid cap growth opportunities and ethical investment opportunities. Simon's aim is to disrupt the cliché approach to investment decision making as he believes that socially and environmentally responsible behaviour is a necessity to long-term wealth creation. Simon has a deep fundamental understanding of the global financial landscape and has compiled 300+ research reports, valuations and corporate appraisals. Simon is commonly featured in major media outlets and his research is published weekly in The Australian.