In the previous pieces, we’d gone over in detail about Peer to Peer lending or P2P lending. We talked about its meaning, how it works, its advantages, its disadvantages and what the future beholds for it.
In a world where most people rely on banks for availing loans or making investments, there is a large number of individuals across the globe who are willingly indulging in P2P lending. So what is it that has made P2P lending such a significant concept and almost a game changer in the market? In this article, we will further explore the substance that P2P lending brings to the Fintech industry.
The Role of Peer to Peer Lending in The Fintech Industry
P2P lending as we know is the practice of lending money to businesses or individuals directly, without any involvement of any financial institution. In other words, in Peer to Peer lending, money is directly lent to businesses and individuals without using financial institutions as intermediaries. This process of lending is carried out through online investment platforms which act as a link between the lenders and the borrowers. The whole process is very convenient and hassle free and culminates in just a matter of a few days. From a lender’s perspective, the concept of P2P lending is a very attractive one because by cutting out the middleman or the bank, the service and overhead fees are reduced, significantly.
Because of the ease and convenience that it offers, Peer to Peer lending has become a key player in the fintech industry. There are a lot of companies today which lend directly to businesses and individuals without involving any middleman. In an ideal situation, the annual percentage rates range from 5-35%, and loan terms are of around 1 to 5 years. The maximum amount of loan that is offered ranges from $30,000 to $100,000.
P2P Offers Much and More
Among the many methods of lending and borrowing that are available to people, P2P lending is seen as a very seamless and convenient process.
P2P lending is a budding concept and still has a long way to go in winning the trust and confidence of people. For all the stakeholders in the fintech industry, P2P lending has opened up new avenues for investment. The investors of the new generation are preferring to invest through P2P lending websites and apps and are ditching the conventional methods of investment.
If we look at the statisticss, a recent research report indicates that the global peer-to-peer lending market had successfully generated $67.9 billion in 2019 and it is expected to reach $558.9 billion by 2027, registering a CAGR of 29.7% from 2020 to 2027.
With the time moving ahead, the traditional banking systems have started using technological advancements to enhance transparency and minimize the operating cost and risk. This is contributing to the growth of P2P lending. What’s acting as a hurdle in the growth of P2P lending is the lack of awareness among people about its benefits and the strict government regulations.
How is Peer to Peer Lending Favoring the Fintech Industry?
It has become quite evident that P2P lending has been a huge supporting pillar of innovation in the fintech industry. With promising future prospects and plenty of benefits associated with it, P2P lending has motivated people to try this method of investing and lending. Here’s how P2P lending has emerged as a boon for the fintech industry:
1. Hassle-free process of application
If we talk about the traditional banking systems, they have their own set of rules and regulations when it comes to providing loans to customers. These policies and rules are to be followed under all circumstances. And as a result, the customers have to indulge in doing a lot of paperwork and have to visit the bank multiple times before the loan actually gets approved and then granted.
P2P lending on the other hand offers the convenience of lending via online platforms where the entire process is done online through e-applications. All that a borrower is required to do is create a profile on the P2P platform and make a request for a loan by specifying the interest rate at which he will be repaying the amount. After the borrower is done with making the profile and processing the request for the loan, he will see a list of lenders appearing in front of him. The borrower can browse through the list of lenders and choose the one which suits his preferences and requirements the best.
2. Lucrative returns
Another way through which P2P lending is benefiting the fintech industry is by offering good returns. For years, people have seen banks as the only medium for providing loans. What acted as a hindrance was the fact that the interest rates of banks were very high which made borrowing next to impossible for a large number of people.
P2P lending has come up as a savior for those who cannot afford to pay the high interest rates of the banks. Both the parties i.e. the borrowers and the lenders have much to gain from P2P lending. The borrowers are at an advantage because they have to pay low interest rates, while the investors are at an advantage because they get to have a good amount of returns on the money that they lend.
Hence, the borrowers and the lenders have a good option apart from the conventional option of banks as the only medium to invest and borrow money.
3. Quick and Hassle-free process
One of the many advantages of P2P lending in the fintech industry is that the entire process is very quick and does not involve any cumbersome processes.
When a borrower goes to avail the loan from the bank, the bank spends a lot of time investigating the background of the borrower before the loan is granted. So, if a borrower needs to have a loan urgently, he cannot expect the bank to fasten the process and grant the loan. Talking about the time period, it usually takes from weeks to months before the loan amount is actually sanctioned.
Contrary to this, a P2P lending facility is very easily approachable with the help of P2P lending websites and mobile applications. The best part about this type of lending is that the entire process is automated and can be completed with just a few clicks. In P2P lending, it’s just a matter of a few days before your loan is sanctioned. What makes the P2P lending apps drive more traffic is the fact that customers can ask to borrow an amount which is as low as $1,000 or even less.
Scope of Peer to Peer Lending in The Fintech Industry
We are witnessing the industry size continuously grow and expand because of the ability of P2P lending to penetrate all the sectors. With the advent of technology and the constant rise of innovation in fintech, the financial arena has been positively transformed. P2P lending is a growing concept and as far as we can see, the trend of this concept is not going to diminish anytime soon. It will only grow and continue to revolutionize the fintech sector.
It has not only played a fundamental role in transforming the concept of financial services but it has also contributed immensely to the growth of the fintech industry. Furthermore, it has provided a plethora of opportunities to individuals, businessmen and start-ups to see P2P lending as one of the key methods to avail loans to kick start their businesses.
A Look at The Challenges For Peer to Peer Lending and Fintech
The biggest and so far the only challenge that the fintech industry is facing is spreading awareness about the benefits and the products that it is offering. And a similar sort of problem the P2P lending market is facing. If the fintech industry and P2P lending are successfully able to overcome this hurdle of lack of awareness, there’s almost nothing that can stop P2P lending from unlocking higher levels of growth avenues for itself and the other industries that embrace it.
Consumers and businesses are constantly in search of better opportunities for themselves to obtain credit. Investors are also constantly looking forward to maintaining a balance between the ups and downs of the stock market and the returns that they receive on the money invested.
With the ease of availing loans, getting good returns on the money invested, no tangible paperwork, no wastage of time, extreme convenience and other such elements, P2P lending is soon expected to become the powerhouse of the fintech industry in the coming years. Future beholds some very promising prospects for P2P lending, considering the many benefits it is offering today and the benefits that it is expected to offer in the coming future.