The P2P lending market is forecast to reach $370 billion by 2025, after growing at a CAGR of 5.6% during forecast period 2019-2025. The growth in the P2P Lending market can be attributed to increasing transparency in P2P lending with technologies such as blockchain and smart contracts being incorporated into lending platforms.
The P2P lending market is poised to witness accelerated growth owing to increased awareness among the public regarding the lower rates of interests and greater transparency offered by lending platforms, as compared to financial institutions. The real estate application is expected to witness the fastest growth at a CAGR of 14.7% during the forecast period. The real estate industry is looking at P2P lending as the best alternative to traditional financial institutions. Real estate projects often require large amounts of investment which makes it difficult for developers to acquire loans from financial institutions. This is a major reason driving developers to opt for P2P lending platforms. Hence, growth in the real estate sector will offer opportunities for the P2P lending market.
In 2018, China was the largest market for P2P Lending, registering a share of over 68%. The size of the Chinese P2P lending industry is larger than the rest of the world collectively, with outstanding loans worth over $215 billion. The country witnessed significant growth in the P2P lending market during 2011 to 2015 as the lack of lending regulations triggered firms to expand. However, the market started to diminish after the Chinese Banking Regulatory Commission disclosed Ponzi schemes conducted by P2P lending platforms. While in 2015, the number of P2P lenders was around 3,500, the number dropped to 1,021 in 2018. The trend is expected to continue in the forecast period as the number of P2P platforms continue to shrink dramatically amid tightening regulations on P2P lenders to restrict fraudulent activities. However, other major markets for P2P lending are the U.S. and the U.K., which are poised to grow at CAGRs of 19% and 23% respectively. Lower interest rates, simplified online platforms and faster loan approval processes are reasons leading to growth of the P2P lending market in these countries.
P2P Lending Market Growth Drivers
- Demand from SMEs and consumer credits
P2P lending is seeing increased demand from small and medium businesses and consumer credits due to the strict credit policies followed by banks. This is driving customers to turn to P2P lending platforms that have relatively faster credit approvals. According to statistics from the Peer to Peer Finance Association (P2PFA), the net lending flow to small and medium enterprises on P2P platforms has seen significant growth compared to net lending by major high street banks. In Q2 2018 in the U.K., net lending to SMEs was recorded at over $210m, while the high street banks lent around $140m.
- Blockchain based P2P Lending
Blockchain technology eliminates intermediaries in the P2P lending process. Hence, adoption of blockchain in P2P lending will make the entire process transparent and reliable for both lenders and borrowers. The increased transparency is expected to help the declining market in China, which is severely dented by fraudulent activities, as well as weakened investor and borrower sentiments. Hong Kong-based Alchemy Coin is a blockchain-based P2P lending market place that facilitates instant and direct lending between borrowers and lenders by leveraging blockchain and smart contracts.
Investments and Funding
In January 2019, the U.S.-based investment firm Matrix Partners invested over $1.7m into Liquiloans, a P2P lending platform based in India.
Lendinvest, a real estate P2P lending platform based in the U.K., raised $35m in a Series C funding round in September 2018. Having begun operations in 2012, the company lent over $2 billion to about 5,000 developers in the U.K.
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The Major Players in this Market Include
Major players in the P2P lending market include Upstart, Funding Circle, LendingTree, Prosper Lending, LendingClub, Peerform, Mintos, Grupeer, Circleback Lending, Zopa, Social Finance Inc., and Kiva Microfunds.
In recent developments, investment management company Downing acquired P2P lender Funding Empire, which had developed investment platform Downing Crowd.
In April 2019, U.S.-based LendingClub, a major P2P lending platform, collaborated with Funding Circle, a business lending platform for small businesses; and Opportunity Fund, a nonprofit lender for small businesses; aiming to expanding its services to small and medium businesses.
The market for P2P lending is anticipated to benefit from the strict credit policies implemented by financial institutions around the world, while faster approval rates and simplified processes are set to drive the market among SMEs and consumer credit applications. Additionally, incorporation of advanced technologies such as blockchain and smart contracts within lending platforms is set to enhance transparency in the system and drive the market’s growth.
Mr. Venkat Reddy
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