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 January I published my predictions for p2p lending trends in 2009. Now let’s see how good my crystal ball was. The black text is my original prediction, with the review added in green and yellow.
More competition and entering more national markets (probability 100%) In many markets multiple p2p lending services will compete for the attention of lenders and borrowers. In other markets, where there is no national p2p lending service active yet (e.g. Canada, New Zealand), p2p lending will be introduced by the launch of a service. Possible candidates include Communitylend and Nexx. It is hard to predict when the dormant US players (e.g. Prosper, Loanio) will overcome the regulatory hurdles and if that step is lasting. The British market which has (compared to other markets) rather low regulatory barriers so far is dominated by a single player - Zopa. I wonder if we’ll see the launch of a competitor there.
Multiple new services launched in 2009, e.g. Aqush in Japan, Sobralaen in Estonia, Uppspretta in Iceland as well as ill-fated Pertuity Direct in the US. Prosper reopened. The mentioned Communitylend and Nexx did not make it so far, though it looks like Communitylend missed a launch in 2009 only by weeks. No competition in Britain for Zopa yet.
Boom of social lending services/p2p microfinance (probability 100%) 2008 saw the launch of Babyloan, Veecus and Wokai. Kiva funded more the 1 million US$ new loans in a single week in the end of December. The steep growth of Kiva, MyC4 and other services will continue and new p2p microfinance platforms will launch.
Kiva continued it’s enormous growth and popularity. Vittana and United Prosperity launched.For MYC4 it was a hard year with decreasing loan volumes.Continue reading →
The House of Representatives yesterday passed a bill that will move regulation of p2p lending services from the SEC to the newly created Consumer Financial Protection Agency (CFPA) in Spring 2010, provided the Senate and President Obama approve the new legislation.
Oversight by the SEC meant that Prosper, Lending Club and other p2p lending companies in the US had to go through an arduous registration process in the past, which forced them to close for new business for several months. Zopa even decided to exit the US market.
Prosper CEO Chris Larsen welcomed this development, saying: “In terms of how the Bill relates to peer-to-peer lending, we’ve always believed that the industry should be regulated as a bank-like sector by a strong, holistic regulator focused on providing robust protections for both lenders and borrowers…”.
The following video was produced by Elektrischer Reporter for German TV ZDF. The elaborate production is different from most other TV coverage I have seen, as it does not focus on one platform but rather tries to grasp the concept of p2p lending as a whole.
Furthermore it differs by the eye-catching make. But see for yourself:
Unfortunately it is available in German language only.
The core ingredient a new P2P Lending company needs is a platform to operate on. The importance of the quality of the software used for the success of the business is high. Not only does interaction with the customer nearly exclusively take place via the interface the website offers, but ideally most processes that are to be conducted are built into the software.
Examples for these are interfaces to external suppliers of credit ratings, accounting functionalities and interaction with necessary bank accounts, possibly document input and handling functions (e.g. income verification).
Unlike other web 2.0 startups p2p lending companies cannot launch on a rudimentally developed platform and eliminate bugs and improve functions on the fly in beta. Customer expectations regarding security, correctness and reporting functionalities are rightly high when it comes to handling their money. The expectations of the users are set by the trustworthiness of online banking services. Another factor is – depending on market – the regulation authority that might require proof for the reliability of the platform/processes
The management team has the choice between:
Developing the software inhouse
Hiring an external contractor to program the platform according to specifications made
Buying a tested and proven source code and use that as start for future development
Outsource the task to a whitelabel provider who provides the technical platform and future release improvements
Developing the software inhouse
The advantage is that the software can very specifically reflect the ideas and needs of the company’s founders. The disadvantage is the high risk to miscalculate time or budget needed.
Costs when starting from scratch are high. It has taken the p2p lending companies on average a year to develop their platforms. The SEC filings of US p2p lending companies reveal figures on software development costs.
Furthermore quality and performance issues might be underestimated requiring rework. Continue reading →
