Peer-to-Peer Lending

Peer-to-Peer Lending: Elimination of Financial Checks to Influence Market Growth

Industry Insights

Peer-to-peer lending is a method of debt financing that enables individuals to borrow and lend money without banks. The global peer-to-peer lending market removes middleman from the process. P2P lending is also known as social lending or crowd lending.

Traditionally, individuals and small businesses who want a loan usually apply for one through the bank. The bank would run extensive financial checks on the applicant’s credit history. This is done to determine if the entity would qualify for a loan or not. In addition, if yes, the global peer-to-peer lending market will determine the interest rate that will be charged on the loan. Individuals that want to avoid being charged high interest rates may opt for an alternative way of borrowing funds such as P2P lending.

  • The global peer-to-peer lending market is among the fastest growing segment in the financial lending market. It is an alternate way of lending money virtually. The core function of marketplace lending platforms is connecting consumers/borrowers with investors/lenders, majorly through online medium. The global peer-to-peer lending market is driven by growth in emerging markets due to marketplace lending, investment, and lower interest rates to consumers.
  • The global peer-to-peer lending market has successfully filled a massive and long required need for an alternative lending platform other than the traditional banking system. The evolution of technology has led to easy access capital for micro, small, and medium enterprises.
  • The global peer-to-peer lending market has stepped-in, to capitalize on the opportunity available to help grow small business borrower’s needs. Alternative small business lending platforms use machines and digital tools to provide credit facility to a wide range of small businesses quickly and efficiently, predominantly to those who have been rejected by banks. Thus, small businesses are one of the largest end-users in the global peer-to-peer lending market.
  • By divulging in alternative lending activities through global peer-to-peer lending market, banks are trying to avoid traditional market and market loss risk. This has led to the reduction of loan finance for small and medium-sized businesses and individual borrowers. They are considered risky by traditional banks, as they might not be able to repay the loans. Thus, influencing demand in the global peer-to-peer lending market.
  • In the global peer-to-peer lending market, the credit score is an extremely important eligibility parameter that lenders look at. Repayment history is as important as the credit score, if not more. In fact, 35% of the credit score is influenced by the repayment history, a parameter that accounts for every single repayment made on existing credit instruments that you’ve availed.
  • Although the cheap rates that, the lending market offers may attract many end users. There may be a few factors restraining the overall growth of the market. These factors include the risk of borrowers turning away at the time when they have to pay back the money they took on lease. This factor will augment demand in the global peer-to-peer lending market.
  • Geographically, the global peer-to-peer lending market has a strong growth opportunity in developing countries such as India and China. As these countries have gigantic population base, Asia Pacific is likely to offer lucrative opportunities regarding rising loan requirement in the years to come.

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