Domination of Institutional Investors Pose Challenge to P2P Platform : Ken Research

P2P lending platforms have recorded a 400-425 basis point advantage over traditional channels.
These P2P platforms have become a huge competition for the banks.

Ken Research has announced its latest publication on, ‘P2P LENDING: RESPONDING TO DISRUPTION’, which offers a comprehensive analysis of the reasons behind the rise of Peer-to-Peer consumer lending platforms. The publication examines the impact of success of P2P platforms on the retail banks and their deposit bases. The report includes an overview of the global lending landscape with an emphasis on countries where the risk to banks from P2P disruption is the highest. The report examines how these P2P platforms developed a competitive edge by thoroughly understanding its development and evolution. Additionally, the report also offers insights regarding how the retail banks can make improvements so as to counter the competition and retain their customers.

Peer-To-Peer lending is the practice of lending money to businesses or individuals with the help of online platforms that matches the borrowers directly with the lenders. Because of its unorthodox means of operations, P2P lending is often considered beyond the boundaries of typical financial institutions and is described as an alternative financial service. Unlike the traditional retail banks, P2P lending platforms do not necessarily try to common bond between the lenders and the borrowers. Some of the unique features of these P2P platforms include ability of lenders to choose which borrowers to invest in, crowdsourcing facilities for unfamiliar borrowers and lenders along with low costs of operations.

Over the years, P2P platforms have gained widespread acceptance. Their popularity is now considered a threat of disruption for the traditional retail banks. Unlike other online financial services, P2P lending platforms target the same creditworthy lucrative borrowers as the retail banks, making it increasingly difficult for the banks to remain profitable. Some of the key factors that have provided P2P lending platforms with a competitive advantage include the use of alternative credit risk models, cheaper cost of credit and subsequent high accuracy of default risk management.

P2P lending platforms are also benefited from high customer loyalty and retention rate. Almost 75% of all its customers have reported intentions of repeat purchase because of higher returns at lower costs and better risk management. The lowers risks can be attributed to fractional lending which allows the platforms to reduce the risk of exposure. Though the P2P platforms are trending, the continuous domination of institutional investors might pose a risk to their sustainability over the years. Overall, the market for P2P lending platforms is projected to grow over the years.

Global P2P Lending Trends

Till 2015, institutional investors had kept away from P2P platforms, but now they are beginning to relent and first signs of institutional investments are showing up. Fund managers across the globe are seeking to gain better yield even when the money market rates continue to disappoint. Thus, HNWs have shown interest in investing in P2P platforms that are less risky and may offer better yield.

Some of the global P2P lending trends include:

Increasingly global reach and expansion with the advent of “marketplace lending”
Innovation that is born from global financial crisis and is focused on reducing lending risks and credit costs.
New generation of millennial investors that prefer Internet-based services over traditional retail banking solutions
A large number of SME’s are using P2P platforms as banks still remain unapproachable in most cases.
The role of regulators within this industry will also be the highlight of 2016, as they will define and shape its path for future success.

Key Topics Covered in the Report: