Market Insight- Global Peer-to-Peer Lending Market
Peer-to-peer lending or also referred to as the P2P lending practice of lending money to businesses or individuals with the help of online services that match lenders with borrowers. It eliminates the financial institution as the middleman. P2P lending has allowed investors to reciprocate higher returns on their investment by balancing the risk. Since P2P lending provides easy loans and additional credit to small and medium-sized businesses, it has a significant contribution to economic growth of many countries. Spearheading the peer-to-peer lending marketplace are the U.K. and the U.S. which have now evolved into mature peer-to-peer lending ecosystems. However, countries such as China, Australia, Japan, and India are the emerging markets for peer-to-peer lending due to borrowers’ lack of credit access.
The global Peer-to-Peer Lending Market was accounted for US$ 124.9 Billion in terms of value in 2019 and is expected to grow at CAGR of 48.2% for the period 2019-2027.
Market Dynamics- Drivers
- Availability of lower interest rates for borrowers is expected to drive growth of the global peer-to-peer lending market during the forecast period
Peer-to-peer lending providers have provided crucial financing solutions by providing easy loans for small and medium businesses at reasonable interest rates. According to the report published in 2014 by the Federal Reserve Bank of Cleveland, peer-to-peer interest rates are typically lower than those of credit cards for most borrowers. This is combined with a superior user-friendly experience for both borrowers and investors. Since the market is in the nascent stage and has less competition, it is expected to attract more customers in the near future. Hence, these factors are expected to drive the growth of the market during the forecast period.
- Supportive regulatory policies from the government of various countries are expected to propel the global peer-to-peer lending market growth over the forecast period
The U.K. and European governments are supporting peer-to-peer lending platforms by providing a suitable and specific framework that supports growth of the industry and ensures to protect lenders from any potential risk. For instance, Financial Conduct Authority, the U.K. regulatory body, has developed and implemented regulations specific to peer-to-peer lending industry, which address the risks and other typical attributes of this industry. Moreover, the French Government has been strongly supporting peer-to-peer lending industry. In fact, it has developed a dedicated website for the industry, which has listed names of prominent peer-to-peer lending projects. The website also provides information regarding important activities of the industry and provides back-office support. Thus, supportive policies by governments are expected to boost the global peer-to-peer lending market growth over the forecast period.
North America region dominated the global Peer-to-Peer Lending Market in 2019, accounting for 42.4% share in terms of value, followed by Asia Pacific, Europe, Latin America and Middle East and Africa.
Source: Coherent Market Insights
Market Dynamics- Restraints
- Risks associated with credit and lend are expected to hinder the global peer-to-peer lending market growth over the forecast period
In the majority of cases, peer-to-peer lending providers do not lend their own money and thus the investors are at major risks. This also means that investors might lose all their money, in case of borrowers default on loan repayments. This risk grows gradually with comparatively high returns the investor is expected to receive for its investment. Moreover, peer-to-peer lending providers claim and rate borrower’s ability to repay the loan and their level of creditworthiness on numerous factors. However, all such ratings are inconsistent and do not provide corresponds to ratings provided by an external credit rating agency. Thus, these factors are expected to hinder the market growth in the near future.
- The return of lending tendency of banks is expected to hamper the global peer-to-peer lending market growth during the forecast period
Generally, banks and mainstream lenders are unwilling to lend money to small and medium-sized businesses, which has offered a massive opportunity for peer-to-peer lenders. However, if the tendency for lending in these areas returns among banks and other mainstream lenders then it would make it challenging for peer-to-peer lenders. Furthermore, in the recent past conventional saving schemes of all types have struggled to provider high interest rates. However, return to higher rates on savings could restraint peer-to-peer lending providers from getting investor’s attention. Therefore, these factors are expected to hinder the global peer-to-peer lending market growth during the forecast period.
- Upcoming massive opportunities in Asia Pacific
The marketplace in emerging economies in Asia Pacific such as China and India operates in both online and offline mode. The recent past has witnessed emergence of online peer-to-peer lending platforms. According to a report by an international philanthropic investment firm Omidyar Network, it was observed that in 2014 more than 400 million people in India borrowed money. However, only 1 in 7 people were approved for a formal loan. In order to bridge this gap, large number of P2P lending companies in India are emerging. However, this number is very less as compared to number of registered P2P companies in China, which are over 2,000.
- Adoption of technology is expected to improve lending experience
Technological development has enabled peer-to-peer lending platforms to get familiar investors directly with businesses and individuals seeking monetary assistance and equity financing. Moreover, technology has enabled new players to make financing decisions and engage with customers more aggressively. It has also assisted in providing low cost operations as compared to traditional financial institutions with large and expensive corporate infrastructure.
Source: Coherent Market Insights
- Emergence of institutional investors
Entry of institutional investors has allowed the market to grow significantly. A large share of funding is now provided by institutional investors rather than individual investors. For instance, in November 2014, Europe’s peer-to-peer global investment fund Eaglewood was launched. It is a publicly-traded closed-end fund that deployed US$ 228 Mn primarily across the U.K. and the U.S. platforms. Moreover, in January 2014, a large investment was made by London based alternative asset management firm Arrowgrass Capital Partners in the Europe's largest peer-to-peer lending service Zopa.
- Point-of-sale financing
Payment made through peer-to-peer lending platforms at the point of sales for purchases done at online sellers and merchants offers a significant value. For instance, in order to provide easy loans at any e-commerce merchant, San Francisco-based Affirm Financial Technologies is offering its consumers with “virtual cards” that entitle them to transact online or at specific retailers.
In global Peer-to-Peer Lending Market, by end user, small business sub-segment dominated the global market in 2019, accounting for 39.03% share in terms of value, followed by consumer credit, student loans and real estate respectively.
Source: Coherent Market Insights
Key players operating in the global peer-to-peer lending market are Daric Inc., Prosper Marketplace, Inc., Pave, Inc., CommonBond Inc., Social Finance, Inc., Upstart Network Inc., Social Finance, Inc., Funding Circle Limited, Peerform, and CircleBack Lending, Inc.
- Key players in the market are focused on product launches, in order to enhance product portfolio. For instance, in March 2016, Prosper Marketplace launched its first mobile app by the name of Prosper Daily.
- Major companies in the market are involved in partnerships and collaborations, in order to gain a competitive edge in the market. For instance, in January 2016, CommonBond partnered with Macquarie Capital, Barclays, and started providing loans to its student borrowers.
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