The global financial crisis and its aftermath has severely affected the banking sector with the credit crisis and stringent laws against consumer lending. The entire lending sector dried up and became inflexible even for those with a good credit history.
At that time, peer to peer lending was just a way for individuals to pay for their credit card debts. However, when the market went down, the p2p lending model surfaced as a disruptive model of lending and borrowing between individuals.
P2p lending witnessed steady traction from individuals and small-medium enterprises, thanks to the hassle-free loan process and higher returns. Since 2010, the p2p market has grown significantly with a huge number of investors (lenders) and borrowers entering into the market. The global p2p market witnessed growth from $26 million to $1.7 billion between 2009 and 2014.
So what made p2p lending popular amongst businesses? Here are some advantages of peer to peer lending.
More accessible source of funding
Peer to peer lending proves to be a more convenient source of funding for small businesses than traditional methods. Borrowers with low credit score and zero collateral have chances to get their loans approved while it is nearly impossible with banks.
Compared to banks which have long and cumbersome loan approval processes, peer to peer lending offers speedier loan approval with minimal paperwork. Borrowers avail the benefits of faster processes and quick turnaround time as compared to banking institutions.
P2p loans usually come with lower interest rates because of the greater competition amongst lenders. Although the rate of interest will depend on the overall credit score of borrowers and the said purpose of the loan.
Higher returns to investors
P2p lending generally offers higher returns as compared to banks. On an average, people get 9% to 20% of interest on their investment.
P2p lending platforms on the rise
With p2p lending gaining traction, online lending platforms became popular too. A huge number of businesses and individuals started gushing towards these platforms to look for easy and quick loans. In contrast to banks, they offered far low complexities in loan processes.
P2P lending platforms emerged as popular alternative finance sources, where borrowers can avail loans at attractive rates, and investors can yield higher returns. They act as intermediates between lenders and borrowers to facilitate transactions. Plus, several features are offered to people such as credit scoring, bank integration, rule-based decisions, and more.
Today, modular p2p lending platforms like Akeo Lending offer customized solutions to businesses looking to build their lending platforms. Akeo Lending offers solutions that allow businesses to adapt to the changing lending environment and consumer expectations swiftly. The 360-degree lending solution comes with customizable back-and-front-end architecture that gives businesses a pedestal to build a P2P lending platform without needing to do everything from scratch.
Breaking financial borders
The peer to peer lending market has moved at warp speed since inception in 2005, when the first p2p lending platform, Zopa, launched in the United Kingdom. Since then, numerous platforms like Lending Club, Prosper, etc. have largely driven the Fintech market.
With constantly evolving technologies, collaboration, and globalization, peer to peer lending has been able to break the financial borders reaching masses around the world. The platforms mentioned above and many others have helped individuals to lend and borrow from anywhere with a single click.
Banks have always enjoyed a superior position in the hierarchy of the global financial system. However, peer to peer lending in a few years has become a popular mode of raising quick and easy funds. With more and more companies looking to leverage the new forms of lending, there are a few downsides that must be considered before investing. For instance, the p2p lending market is comparatively less regulated than banks and is prone to defaults. Nevertheless, these are the problems which can be eradicated from time to time.
That said, p2p lending could soon be a viable option for big companies as well. Although, it will be interesting to see how banks associate with these platforms to offer a collaborative solution in the interest of consumer satisfaction.