Over the past five years, peer-to-peer lending (P2P) has grown rapidly. Now more commonly referred to as “marketplace lending” because of the large range of institutions, intermediaries, and non-“peer” parties involved, the industry is poised to continue its year-on-year triple-digit growth. The breakneck speed of P2P’s growth seems natural given the many advantages it offers. As an industry, focus has gradually moved from a community of individuals lending directly to other individuals (often within affinity groups), and has evolved into a powerful engine of technical efficiency. Today, P2P is viewed in many different ways: a potential agent of financial inclusion; an innovation in big data analytics and credit risk evaluation; an efficient mechanism for loan matching without the often burdensome capital and regulatory requirements of banks; an innovative operational model leveraging the cost savings of online platforms; a new asset class for retail and institutional investors; and the list goes on.
Change has been slow to come, with many banks questioning the P2P model’s long-term relevance and P2P lenders failing to capture the public eye for many years, but big banks have recently begun to show their appetite for the more robust of the online lenders. Banks have made equity stakes in P2P businesses in the past, such as Barclays’ 49 percent investment in South Africa’s RainFin. However, 2015 seems to be the breakout year for P2P into mainstream finance. In June, Goldman Sachs announced plans to enter the consumer lending space through an online platform, akin to what Lending Club and Prosper offer in the U.S. Several days later, Morgan Stanley featured an optimistic report on P2P lending on its home page. In August, Standard Chartered led a $207 million C-round of funding for Chinese P2P company Dianrong.
Despite all of the change, the majority of articles published do not provide in-depth explanations of the specific mechanisms and trends (e.g. online vs. offline models or specific roles/risks of the various parties involved) that underlie this recent expansion. Rather, articles repeatedly focus on the growth potential of the industry, in some instances highlighting risks, but typically without deeper analysis. This is especially true of commentary on China, where data is difficult to find and as a result conflicting interpretations exist.
These discrepancies are also due, in part, to the fact that very few reports have gone deeper to pull back the curtain and examine the details of the P2P market. Moreover, few reports have tied detailed analysis of these various P2P trends together into the past, present, and future “story of P2P.” Without this type of in-depth analysis, it is hard to separate the hype from the facts and examine the underlying risks inherent in the industry, as well as future trends.
For the past six months, Positive Planet China has been collaborating with the Credit Suisse Microfinance Capacity Building Initiative to produce a piece of research, titled “New Insights Into an Evolving P2P Lending Industry: how shifts in roles and risk are shaping the industry.” Rather than being another desktop-only research report that simply summarizes the existing field, this paper is also based on numerous interviews with industry experts to dive into deeper layers of the P2P industry.
Included is a focused analysis of P2P in China that aims to clarify some of the confusion about this massive but opaque market, as well as a review of platforms with more socially-focused missions. Additionally, the paper provides context for the global industry, its current situation, and what to look for in the future. We hope that this report will provide a roadmap for regulators, consumers, industry players, and anyone else interested in understanding, evaluating, and driving the industry to further levels of development.
The full Positive Planet report can be read here.
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