Nowadays, the spotless reputation of banks is in the phase of decrease. Hence, we are offered with something different – P2P (peer-to-peer) online platforms. The generation of “online people” seek an alternative to the traditional banking, aiming at better offers and conditions. Lending platforms, by the means of online auctions match borrowers with lenders and create a much more convenient way to cooperate. The offered loans usually include a few “slices” taken from more than one lender which makes the deal they sell much more beneficial for both sides than in the case of traditional banking – for instance, the British P2P platform Zopa gives 4.9% to lenders and their personal loans are charged with 5.6%.
While interest rates are extremely low and people lose their confidence in banks, P2P is becoming more and more popular in many countries – the American leaders in the trade, Lending Club and Prosper, own 98% of the market. This phenomena appears to be the natural consequence of the growing access to e-commerce which wins in one of the most significant area – it allows to lower the costs of running the business, even three times. The next advantage of P2P lending is the fact that it has the power to remove the mismatch present between long-term loans and short term deposit. The only obstacle is to gain trust of the new clients who are used to the traditional banking and would not be eager to invest money in something that they have never heard before.
Worries are undeniably legitimate since all investments involve some risk. What are the main dangers? First of all, it is a platform’s bankruptcy and the threat of losing all money. Apart from that, unlike traditional banks, P2P does not offer any state-backed guarantees which protect your money. The next problem with P2P is its transnationality. A huge number of foreign investors are attracted to the American market. The fact that it collects money from foreign lenders as well, make any legal problems which occur in this “mixture” unsolvable.
New regulations are to help remove the high risk from P2P businesses through demanding such organization of the firm’s capital which will ensure the money left for remaining loans in case of closing. When it comes to the insurance, for example Zopa and other British firms offer “provision funds” which are to provide help for loans in case of problems. Meanwhile, there are some discussions going on concerning more insurance options.
The majority of money in the American platform – Lending Club – belongs to the wealthy individuals and institution, the rest comprises retail investors. For now, all savers have the same conditions and opportunities, however, some people maintain that it is the matter of time when big investors start to command the market.
Peer-to-peer lending is still developing and with the time passing, it surely will become much more popular. Certain pivotal improvements should help gain more interest and trust among customers. Whether it succeeds or not, depends on the effective marketing, good management and cooperation with the big companies.