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ISSUE 84 | AUGUST 2023
Platforms gear up for battle against banks PEER-TO-PEER lending platforms are raising their target returns in order to compete with banks in a higher-interestrate environment. Following a series of base rate hikes, high street banks have begun to raise the rates offered on standard savings accounts. By mid-July, a number of instant and easy access savings accounts were offering savers 4.5 per cent, while a two-year cash ISA was paying 5.8 per cent. In the previous era of historically low interest rates, P2P lenders were able to beat the highest bank rates by at least a few percentage points. However, the gap between bank returns and P2P returns has begun to narrow. According to the latest Peer2Peer Finance News data, the average Innovative Finance ISA (IFISA) was offering target returns of 8.86 per cent in July 2023. At least seven IFISA providers were promoting target rates of 5.8 per cent or lower.
However, platforms have begun to review their offerings as the competition for investor money heats up. “Investors have much more choice at the moment, which is fair enough as they have had to live with low interest rates for many years,” said Chris Brown, head of lending and operations at P2P pawnbroking platform Unbolted. “We have increased our
target lender rate already this year from 7.8 per cent to 10.2 per cent and continue to monitor. “Bank savings aren’t really a direct competitor, they’re a different product, but P2P needs to offer a good premium over and above what the average customer can get on a one-year fixed savings rate on the high street. At the moment that looks like around 5.25 per cent per annum, so
our 10.2 per cent offers value for an appropriate proportion of an investor's available capital – it’s all about diversification.” Unbolted is just one of the P2P firms that has opted to increase its target returns following the Bank of England’s monetary tightening. Soon after the central bank raised the base rate to five per cent in June, property lender easyMoney hiked >> 4