Financial technology (FinTech) is a very captivating field at the moment. It has attracted growing attention from the media, financial experts, and the public. Much of the spotlight has been given to new and innovative FinTech platforms, but financial technology has been a part of our lives for years now. Automated teller machines (ATMs), credit cards, and online banking are all products of financial technology.
But of course, contemporary financial services have become even more sophisticated. P2P lending is a popular business model developed by FinTech and has become an alternative solution for both investors and borrowers. So what’s P2P lending and what the future outlook for it?
On P2P Lending
P2P lending was developed to resolve some of the demand for quality financing in the digital era. The business model provides both personal loans and small business financing and seeks to leverage on the existing gaps in the lending system and serve the underbanked borrower segment. At the same time, P2P lending provides excellent returns to investors who lent money into these loans. It’s no surprise that the P2P industry has grown significantly in the last decade, while creating opportunities for individuals and small business growth.
The attraction of P2P lending to borrowers is driven by several factors. First, bank loans generally require collateral from prospective borrowers. Often, small businesses and SMEs don’t have the required assets and collateral necessary. Second, P2P lending offers a faster and simpler application process, most of it done online. Meanwhile, investors also get various benefits, including higher returns compared to traditional investments like deposits, an affordable first deposit, and a concept that is easy to understand.
P2P lending already has some famous names, including Lending Club and Prosper in the USA, Funding Circle in the UK, Lufax and Dianrong in China. But for the general public, P2P lending is still relatively now as both a loan option and an alternative investment.
Homework for the Industry
There’s still a lot of room for P2P lending to grow. Not to mention, many people still don’t know about the business model and thus are not comfortable with investing and borrowing through P2P lending. In the future, the P2P lending industry needs to:
- Specialize – P2P lending platforms must specialize in different segments and niches. In fact, successful P2P lending platforms tend to target a segment different from banks and other financial institutions, placing a focus on small businesses and SMEs.
- Cooperate – The industry will continue to grow if it works together with incumbent players in the financial system rather than competing with them. P2P lending platforms and financial institutions can explore innovative joint venture arrangements. The P2P industry can also look into various opportunities with non-financial services to reach a wider audience.
- Innovation – Digital technology can be used to create better management systems, utilize wider payment systems, improve credit underwriting, and compile data and information more effectively for P2P lending platforms.
In conclusion, P2P lending has great potential to grow bigger in the near future, thanks to the factors and digital technology that enable the model to reach a wider market. The key is reaching for synergy and cooperation rather than competition and disruption.
Keep hearing about how “disruptive” FinTech is? Read another point of view on “The Unexpected Synergy between Banks and FinTech”