Global Peer to Peer Lending Market is Estimated to Witness High Growth Owing to Rapid Digitalization and Increasing Internet Penetration
The Global Peer to Peer Lending Market is estimated to be valued at USD 145.03 Bn in 2024 and exhibit a CAGR of 21.5% over the forecast period 2024-2031. Rapid digitalization and increasing adoption of online services have fostered the growth of the global peer to peer lending market. Furthermore, peer to peer lending helps connect borrowers directly with investors, providing a hassle-free digital experience.
Market Dynamics:
Rapid digitalization has enabled the proliferation of online lending platforms, allowing individuals to access loans with ease. This has significantly boosted the peer to peer lending market. According to recent reports, over 80% of the global population now has access to the internet. Increased internet penetration has made online lending a convenient option for both borrowers and investors. P2P lending platforms offer a wide variety of investment opportunities for individuals looking to maximize their returns while supporting others through financial assistance. For borrowers, peer to peer lending provides an alternative source of financing over traditional banks with relatively lower interest rates and simplified processes. The removal of middlemen allows for direct interaction between lenders and borrowers, making the process cost-effective for both parties. These factors are expected to continue driving the growth of the global peer to peer lending market over the forecast period.
Low Interest Rates from Banks are Driving More Borrowers Towards Peer to Peer Lending
One of the major drivers for the growth of the peer to peer lending market has been the consistently low interest rates offered by traditional banks on loans. With interest rates remaining low for many years after the 2008 financial crisis, borrowers have been looking for alternative sources of financing that can offer better rates. Peer to peer lending platforms have been able to provide loan rates that are 1-3% higher than banks, saving borrowers considerable interest costs over the life of a loan. As long as interest rates at banks remain low, more borrowers will be incentivized to investigate peer to peer lending options.
Growing Consumer Comfort with Online Financial Services is Increasing Peer to Peer Lending Activity
Another driver has been the significant growth in consumers' comfort level with conducting financial transactions online. Younger generations especially have embraced digital banking and investing apps. This growing acceptance of online financial services lowers the perceived risk of peer to peer lending, where interactions are entirely done digitally without a physical branch. Platforms offer user-friendly interfaces and emphasize transparency around loan performance history to ease concerns. As digital natives move into their prime borrowing and investing years, their preferences will drive further peer to peer lending expansion globally.
Lack of Harmonized Regulations Across Markets Hampers Cross-Border Lending
One restraint on the market is the lack of unified regulations for peer to peer lending across different countries and regions. Each jurisdiction currently has its own rules around licensing requirements, investor protection standards, platform governance and other aspects. This regulatory fragmentation poses challenges for platforms looking to expand lending networks across international borders. Borrowers and investors also face complexity in identifying the rules they must follow based on their locations. The development of more harmonized global regulatory guidelines could help facilitate increased cross-border lending activity.
Concerns Over Platform And Borrower Credit Risks Discourage Some Investors
Investor concerns around the credit risks involved in peer to peer lending present another market barrier. While loan performance data is improving transparency, individual loans or even entire platforms could default, resulting in total or partial losses. Most platforms do not offer deposit insurance like banks either. Some investors remain wary of the underlying credit assessments done and hesitate putting large portions of their portfolio into peer to peer lending for these risks. Growing education on the sector's actual risks and mitigation strategies used by platforms is needed to address these concerns over time.
Expanding into Other Financial Products and Services Creates New Revenue Streams
One opportunity area for peer to peer lending businesses is to leverage their established user networks and relationships to expand into additional financial services. Platforms could launch offerings like deposit accounts, wealth management tools, bill payment services and personal loans. By developing a full suite of products they become a one-stop-shop and can cross-sell to retain and grow their customer base. Expanding service menus generates new ongoing revenue streams to supplement income from loan origination fees.
Growing SME Financing Needs Present a Lucrative Untapped Peer to Peer Lending Segment
Another major market opportunity lies in expanding lending activities to small and medium enterprises. Most peer to peer lending activity currently focuses on consumer loans, but SMEs worldwide also face difficulties accessing reasonably priced financing from traditional sources. Platforms focused on business loans could experience rapid growth filling this need. SMEs collectively represent a huge financing gap that peer to peer lenders are well positioned to tap. Servicing business clients involves different credit assessment and loan structures, but could open up massive new lending volumes if platforms successfully break into this underserved market segment.
Link - https://www.coherentmarketinsights.com/market-insight/peer-to-peer-lending-market-3677
Key Developments:
- In December 2023, EaseMyDeal, a platform aimed at simplifying financial transactions, partnered with Lendbox, India's leading peer-to-peer (P2P) lending platform and an RBI-registered NBFC-P2P company, to introduce P2P investment options on its app, offering returns of up to 10% per annum.
- In November 2023, Zopa, the world's first peer-to-peer (P2P) lending platform founded in 2005 and now a UK-based digital bank, received regulatory approval to launch a full-fledged digital banking service. This milestone allowed Zopa, which has a history of connecting lenders with borrowers and managing over £6 billion in loans, to expand its operations beyond P2P lending and offer customers a comprehensive suite of banking services, including savings accounts, credit cards, and money management tools, while leveraging its expertise in credit risk management and customer-focused financial services.
- In February 2021, LendingClub, a leading US-based peer-to-peer (P2P) lending platform founded in 2007 and known for connecting borrowers with investors, completed the acquisition of Radius Bank. This acquisition, which was initially announced in February 2020, marked a significant step towards establishing LendingClub as a full-spectrum digital marketplace bank. The integration enabled LendingClub to expand its product offerings beyond P2P lending, allowing it to provide customers with a broader range of financial services, including savings accounts, checking accounts, and other banking services, thereby enhancing its ability to help customers both pay less when borrowing and earn more when saving.
- In September 2021, Funding Circle, a leading UK-based peer-to-peer (P2P) lending platform established in 2010 and known for providing over £16 billion in loans to approximately 140,000 small businesses globally, announced a strategic partnership with ING Bank. This collaboration aimed to enhance access to business loans for small and medium-sized enterprises (SMEs) in Germany by leveraging Funding Circle's advanced lending expertise and ING's extensive customer base and financial resources.
Key Player:
Avant LLC, Beehive (UAE), Bondora, CircleBack Lending Inc., Estateguru, Faircent (India), Funding Circle Holdings plc, Kabbage Inc., LendBox, LendingClub Corporation, LendingTree, LLC, Lendwise, Max Crowdfund B.V., Modalku (Funding Societies, Indonesia), and Peerform, Inc.
