Peer pressure: How peer-to-peer lending platforms are transforming the consumer lending industry

February 2015

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Is P2P consumer lending a threat or an opportunity? This paper discusses how peer-to-peer lending platforms are transforming the consumer lending industry.

P2P platforms seem to have found a niche by offering borrowers an improved lending experience — and they’re quickly gaining momentum. This so-called peer-to-peer (P2P) lending model is growing in popularity with borrowers because of its perceived low interest rates, simplified application process, and quick lending decisions, and is rapidly expanding to new product categories including mortgages and other secured loans. Although P2P traditionally referred to lending between individuals, this paper also includes other marketplace lending where funds are provided by traditional financial intermediaries, such as investments made by institutional investors through P2P platforms.

P2P lending’s expansion into mortgage and other asset classes means that P2P is no longer merely a way to obtain small-dollar-amount personal loans, which banks might not see as core to their business offering, but instead is a potential threat to banks’ existing customer bases. We believe traditional financial institutions (banks and non-banks) have two courses of action: collaborate with P2P platforms or compete with them.

This paper discusses how peer-to-peer lending platforms are transforming the consumer lending industry and the key considerations that financial institutions should evaluate when deciding on their strategic response.