The Global Peer-to-Peer Lending Market, by End User (Consumer Credit, Small Business, Student Loans and Real Estate), by Business Model (Traditional P2P Lending and Marketplace Lending) and by Region (North America Europe, Asia Pacific, Middle East and Africa and , Latin America) - Global Forecast to 2027”, is expected to be valued at US$ 2,921.7 Billion by 2027, exhibiting a CAGR of 48.2 % during the forecast period (2019-2027), as highlighted in a report published by Coherent Market Insights.
Peer-to-peer lending or P2P lending allows individuals or businesses to obtain loans directly from other individuals. The major advantage of P2P lending is that it eliminates financial institution as a middleman, which offers financial assistance with low-interest rates. P2P lending platforms connect borrowers directly with investors with each platform having predetermined rates and terms, which enables the transaction. The majority of platforms offer a wide range of interest rates based on the creditworthiness of the applicant. In the past few years, peer-to-peer lending platforms are actively seeking cross border funding to expand into international markets. P2P lending has made significant contribution to economic growth of many countries by providing easy loans and additional credit to numerous small and medium businesses.
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.
Advancements in technology resulting in enhanced and simplified lending experience are expected to drive growth of the global peer-to-peer lending market during the forecast period
The online interface has acted as one of the biggest differentiators in terms of the customer experience for peer-to-peer platforms. It has made peer-to-peer lending process simplified and streamlined. Technological advancements have enabled peer-to-peer lending platforms to get familiar investors with borrowers that are seeking monetary assistance and equity financing. Technology has also assisted in providing low-cost operations compared to traditional financial institutions with their large and expensive corporate infrastructure and branches. Moreover, peer-to-peer companies provides loans to students that have developed their own analyzing prediction software that enables easy loans by predicting borrower’s financial capability and personal propensity to repay. Hence, these factors are expected to support the global peer-to-peer lending market growth over the forecast period.
Major growth opportunities in the Asia Pacific region
The Australian market also has great potential as it has similar characteristics that of the U.K. market, such as high level of online penetration, lack of unsecured consumer and business lending. This could prove to be a great opportunity for peer-to-peer lending platform providers. Furthermore, China has massive potential for peer-to-peer lending as the public sector banks offer very low deposit rates and are reluctant to lend to small businesses. For instance, Lufax, one of the leading online peer-to-peer lending platforms in China offers a 6% to 8% interest rate as compared to 1.75% offered by the Bank of China for one-year deposits.
Lending and credit risks are expected to restrain growth of the global peer-to-peer lending market during the forecast period
In most cases, the peer-to-peer lending providers do not lend their own money and therefore all the risk is associated with the investors. This means that the investors might lose some or all of their money in the case of borrower defaults on loan repayment. This risk grows bigger with comparatively high returns that the investor might receive for their investment. The peer-to-peer lending providers often claim and rate borrower's ability to repay the loan and their level of creditworthiness on various factors. However, all such ratings are inconsistent and do not correspond to ratings provided by any external credit rating agency. Furthermore, the factors also vary with platforms. Therefore, these factors are expected to restrict the market growth in the near future.
Previously, the global peer-to-peer lending market was dominated by individual investors. However, the transition from individual investors to institutional investors has started to take place where the institutional investors are recognized as the potential of this asset class. For instance, in June 2014, Funding Circle entered into a partnership with Santander UK, a U.K bank. Such large investments provided greater finance accessibility to thousands of small businesses in the U.K.
Payment done via peer-to-peer lending platforms at the point of sales for purchases done at online sellers and merchants offers a significant value. It is crucial in point-of-sale financing to have high acceptance rates, in order to meet the requirements of retailers. Moreover, marketplace lending is a sole platform provide such high approval rates in marketplace of investors with various uncertainties.
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.