In a dynamic and increasingly global FinTech landscape, one segment is catching the eye of venture capitalists and established commercial banking operations – peer to peer (P2P) lending. The concept is simple: consumers lend or borrow funds online from other users via a platform that matches interest rates and credit checks into a simple fast loans system. The platform monetises the percentages it takes from the transactions, with revenues rapidly expanding as credit demand is surging in Western European markets and major emerging economies such as China, India and Russia. It is thus unsurprising that this segment is seeing especially active M&A activity.
2014 is expected to be a vibrant year for the FinTech sector, as corporate financing pours in and innovation drives diversity in offerings. Perhaps the stand-out market for the year is set to be P2P, as it increasingly breaks into the mainstream amidst growing consumer demand for loans. Integration into traditional financial systems and more agreeable government regulations are providing a platform for continued expansion. For example, in the UK, P2P was included within the “NISAs” (savings instruments) and the local regulator, the FCA, also approved regulatory reforms to the segment that were launched on April 1st.
One of the key selling points of P2P platforms is the ability to offer lower interest rates than the traditional banking marketplace, both to consumers and businesses. Increasingly, these portals are becoming a viable borrowing option for start-up entrepreneurs although the sums on offer are typically capped at high-street banking levels. However, a major barrier to continued expansion is risk management, necessary to balance the safety of lenders and the default loss rate for P2P platforms as a whole. Not all platforms offer a guaranteed safety net to online consumer lenders, which places the segment as a whole on less safer ground than commercial banking institutions.
Nonetheless, some firms are providing a stable and safe system. For example, the UK’s RateSetter has been a pioneer in the domestic market. The young firm was established in 2010 and in 2014 reached the £200 million money matched milestone. The start-up expanded by 219% in revenues annually in 2013, almost double the still impressive expansion rate of 109% for the P2P segment as a whole, which placed it as the fastest expanding P2P business in the country.
It is thus unsurprising that business transfer agents are seeing especially strong activity in the FinTech loans environment, with established US platforms and corporate financiers increasingly looking to acquire and finance European and Asian start-ups. The lending/borrowing model can continue to expand further, and will likely branch out into other segments such as FX Trading. There is certainly little doubt that P2P offers the future model for the savings and loans market, removing banks and high fees from the consumer loans equation.
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