Peer-to-peer evolution

BY Richard Summerfield

Peer-to-peer lending has, over the course of the last decade, established itself as one of the fastest growing areas of FinTech; however, the process has also evolved into the increasingly popular marketplace lending. 

It is important to note that today’s marketplace lending has gone beyond merely matching lenders to borrowers (although this type of peer-to-peer lending is still popular in a number of markets, chief among which is China). Instead, marketplace lending has become, according to a new report from PwC, a “broad range of financing activities that cross asset classes and investor types”. The report, 'From idea to innovative market leader: A roadmap for sustainable marketplace lending growth', also notes that “marketplace lending has become a viable business with enough promise that many traditional financial institutions big and small have taken notice and are beginning to actively respond".

The evolution of marketplace lending has been swift. Marketplace lenders have evolved from merely offering unsecured consumer and small business loans and are now able to provide new forms of innovation well beyond their traditional lending markets.

PwC classifies marketplace lenders as any non-bank organisation that is primarily a digital operation. Marketplace lenders are generally unfettered by a past of traditional banking and are typified by their dynamism and agility, particularly compared to their traditional peer-to-peer rivals.

Marketplace lenders, according to the report, usually progress through a four-stage roadmap which consists of: (i) building a foundation; (ii) refining their core lending business; (iii) expanding and innovating; and (iv) looking beyond core lending.

However, as they progress through this framework, it is imperative that companies be mindful of the risks inherent in operating in the marketplace lending space. Companies face myriad risks if they do not keep refining their business and expanding and innovating continuously. Given how quickly the market moves, new platforms are always looking to emerge and disrupt incumbent businesses with even newer technology and innovations. If companies are not careful, the disrupters can quickly become the disrupted.

Report: From idea to innovative market leader: A roadmap for sustainable marketplace lending growth

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