Gartner forecasts p2p lending volume to read 5 billion US$ outstanding loan volume in 2013.
Consumers who lose their jobs can’t get loans to cover periods of unemployment; businesses that encounter trouble due to low demand can’t get credit lines to see them through to recovery. Furthermore, banks are more interested in recapitalising than in lending. Growth in P2P lending will be driven by investors seeking higher returns and borrowers shunning (or being shunned by) banks. Gartner recommends that financial services providers investigate how to partner and collaborate in adding P2P to their existing offerings rather than building their own P2P lending networks.
An earlier forecast of Gartner from Feb. 2008 overestimated the impact that p2p lending will have on bank lending in 2010 – at least in my view – but 2010 is not over yet.
In this – rather long – article I’ll examine if and why p2p lending has the potential to become disruptive and displace the “conventional” way banks hand out consumer loans.
A good read to get some opinions before continuing is reading these posts:
Wikipedia gives the definition that Clayton M. Christensen has coined in 1995:
Disruptive technology and disruptive innovation are terms used in business and technology literature to describe innovations that improves a product or service in ways that the market does not expect, typically by being lower priced or designed for a different set of consumers.
Disruptive innovations can be broadly classified into low-end and new-market disruptive innovations. A new-market disruptive innovation is often aimed at non-consumption (i.e., consumers who would not have used the products already on the market), whereas a lower-end disruptive innovation is aimed at mainstream customers for whom price is more important than quality.
Disruptive technologies are particularly threatening to the leaders of an existing market, because they are competition coming from an unexpected direction. … In contrast to “disruptive innovation”, a “sustaining” innovation does not have an effect on existing markets. Sustaining innovations may be either discontinuous (i.e. “revolutionary”) or “continuous” (i.e. “evolutionary”). Revolutionary innovations are not always disruptive.
There are multiple examples in the Wikipedia article. I want to give two others here. The newspapers ignored or at least failed to adapt to what the internet meant to their classified ads business. As a result they were one of the first to loose offline business to totally new competitors (multiple ad sites, Ebay, Craigslist and others). The music industry fought a downhill battle not to let CDs be replaced by replaced by (initially pirated) digital distribution.
In both cases the shift to the internet was inevitable, because the new technology offered a better process with superior customer experience at lower cost. The question here is if, had the dominant players faster reacted to the new medium, would they have retained (a larger part of) their dominant market position?
Cutting out the middleman?
One of the argument of p2p lending companies is that they are “cutting out the middleman”, meaning the bank out of the lending process. The way p2p lending works today, that is an argument open to attack. Continue reading →
P2P lending services continue to grow. In some markets the speed of growth has even accelerated.
P2P-Banking.com has created the following overview table listing services in operation and ranked them by loan volume funded in the past 6 months. This image may be reprinted on other internet sites, provided it is not altered or resized and the following text (including the direct link to this article) is given as source directly below the image: Source: P2P-Banking.com
For some service like the Korean Moneyauction and Popfunding no figures were available. Also omitted are some services that did not reply to information requests.
Note that Prosper.com was closed for most of the observed time span and did not make the minimum cutoff for the table. Also note that Zopa Italy is currently closed.
Especially british Zopa and the German services show strong growth lately. Smava nearly doubled loan volume in July compared to June (chart), whereas Auxmoney tripled it (chart). At Smava currently even 25,000 Euro loans (approx. 35,750 US$) are funded with bids in only 4 minutes (!) bidding time (example loan).
On the other hand MYC4‘s growth slowed in the last months (chart) due to problems with the providers loan picks.
P2P lending is spreading internationally. While the biggest loan volumes are generated in the US market, many p2p lending websites have been established in other international markets.
P2P-Banking.com has created the following overview table listing services that are in operation and ranked them by loan volume. The loan volumes are not directly comparable for they are cumulative since launch of each service and represent different time spans.
In total approx. 740 million US$ have been funded through peer to peer lending/social lending services so far worldwide.
This image may be reprinted on other internet sites, provided it is not altered or resized and the following text (including the direct link to this article) is given as source directly below the image: Source: P2P-Banking.com
P2P lending is spreading internationally. While the biggest loan volumes are generated in the US market, many p2p lending websites have been established in other international markets.
social lending services enabling micro financing (e.g. Kiva, MyC4) – participants driven mainly by social motives
other concepts (e.g. Virginmoney which is special in the way that it does not do the matchmaking between borrowers and lenders, but supports the process between persons that already had offline relations- slogan “We manage loans between family and friends“)
Sites funding student loans can fall into any of these three categories or combine motivations.
P2P-Banking.com has created the following overview table listing services that are in operation and ranked them by loan volume. The loan volumes are not directly comparable for they are cumulative since launch of each service and represent different time spans.
Asked for a figure, a Microplace spokesman pointed out “…it is important to note that MicroPlace is not a P2P site. We are a platform that offers investments to the retail public.“. No loan volume was quoted, but he stated “investments purchased on our site have enabled over 26,000 microfinance loans.”
In total approx. 685 million US$ have been funded through peer to peer lending/social lending services so far worldwide.
This image may be reprinted on other internet sites, provided it is not altered or resized and the following text (including the direct link to this article) is given as source directly below the image: Source: P2P-banking.com
If you are a representative of a p2p lending service and want your service to be included in the next update of this table, please send me an email with information about your company.
Consultancy Gartner predicts that: "By 2010, social-banking platforms will have captured 10% of the available market for retail lending and financial planning". Not surprisingly Zopa is happy about that forecast. I think this is an over-optimistic outlook but James Gardner of BankerVision (working at Lloyds TSB bank) who also thinks it is aggressive points to the example of Paypal, which has been underestimated years ago. A more supportive view comes from Antony Mayfield while taking Zopa as example.
