How peer-to-peer lending is transforming the lending industry
- May 1, 2016
- 2 min read
Before 2008, the financial market was dominated by large, trusted banks that offered a traditional approach to lending and provided the majority of finance for businesses, typically backed by physical, material assets. The string of scandals that has plagued banks since then has led to fundamental changes in the availability of bank lending and a new dawn of banking regulation. Banking has been transformed and in light of new regulation it will most likely never return to the pre-2008 environment.
It will come as no surprise that the traditional means of financing businesses are transforming. Revolutionary changes to the global financial markets and technological advances are altering funding sources and the mechanisms for accessing them.
At the same time, technology and new business models are also shaping the types of business finance and funding available, as well as determining the ways organizations source it. Individual high-net-worth investors are more important than ever and are increasingly encouraged to invest in growing small, emerging businesses through different types of incentives and new funding models. Equally important in this shift are the opportunities afforded to average working class individuals who are now able to take part in new investment and financing opportunities.
P2P platforms seem to have found a niche by offering borrowers an improved lending experience — and they’re quickly gaining momentum. This so-called peer-to-peer lending model is growing in popularity with borrowers because of its perceived low interest rates, simplified application process, and quick lending decisions, and is rapidly expanding to new product categories including mortgages and other secured loans. Although P2P traditionally referred to lending between individuals, it now includes other marketplace lending where funds are provided by traditional financial intermediaries, such as investments made by institutional investors through P2P platforms.
P2P lending’s expansion into mortgage and other asset classes means that P2P is no longer merely a way to obtain small personal loans, which banks might not see as core to their business offering, but instead is a potential threat to banks’ existing customer bases. PWC believes that traditional financial institutions have two courses of action: collaborate with P2P platforms or compete with them.
Business finance going forward will require the ability to adapt to the changing nature of banking and tapping into powerful online communities (“the Crowd”) while taking advantage of the social aspect of finance.
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