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Is Peer-to-Peer Lending the Future of Banking

Updated on November 27, 2013

Peer-to-peer lending is flourishing, rapidly. However, where is this growth leading, what is its future and what is its role in traditional banking? Peer-to-peer lending is the funding option for millions of individuals and SMEs around the world that cannot secure a loan from a bank for one reason or another. For many, especially the small business owner, this is often the only option they have to get access to funding. As a result of the demand, the biggest P2P lenders in the U.S. market, Lending Club and Prosper, are responsible for over $1 billion in funds to American citizens and their ventures. In comparison, only 25% of all lending has come from traditional U.S. banks.

It was 2006, in San Francisco, where the peer-to-peer lending industry was first established. In just 7 years, it has grown exponentially and spread globally where individuals and businesses have eagerly embraced it. It’s no wonder that the P2P industry started in America – in many respects its concept is synonymous with the American dream. By giving people the opportunity to get funding without having to approach banks. No need for lenders and borrowers to meet, no extra costs and a relatively rapid financial arrangement, P2P lending is easily completed online, making all parties satisfied. Peer-to-peer lending flourished at a time of a global recession, when banks weren’t willing to lend.

In the U.K. the peer-to-peer lending industry is also thriving. Technological advancements have had a positive impact, the positive ratings of American-based companies have given U.K. citizens the confidence to trust P2P lending and ignore the banks. The question we are all asking is can the peer-to-peer lending industry continue its growth, even post global recession when, in theory, the banks become more generous again.

The benefits of P2P are clear for consumers and small business owners due, in part, to the fact that the growth has stayed almost unchecked for the past 5 years. It’s unlikely that banks will relax their excessively stringent lending practices overnight, however, it is possible that with more favourable rates more individuals will start to perceive banks in a more positive light. Will a growing confidence in traditional banking have a strong diminishing effect on P2P lending?

One of the immediate challenges of the peer-to-peer industry in the U.K. is the introduction of regulations. For many P2P businesses this will be a good thing and many are actively campaigning for better regulation. However could these regulations have an effect on aspiring borrowers with poor credit history? The U.S. P2P regulations are planned for January 2014 and the U.K. will implement theirs in April 2014.

Making predictions based solely on these changes is perhaps too brave, however it is widely believed that the lack of many alternative funding options in the U.K. will eventually maintain the success of P2P. P2P lending, though approaching a pivotal juncture, will most likely suffer only a minor decrease in appeal. It’s been offering a bright and liberated future to start-ups throughout the world and therefore, there is enough optimism for the long-term growth of the industry.

So far, P2P lenders in the U.K. have kept bad debts impressively low which is quite promising. One of the latest newcomers in the industry in the U.K. is called FundingSecure. Started as an alternative for individuals and small businesses, FundingSecure is an innovative scheme that takes P2P lending one step further. It is the first P2P pawnbroker in the U.K., allowing its borrowers to take out loans against an asset. This asset backed lending removes much of the risk and this innovative approach towards P2P lending and pawnbroking may well be one of the remedies that keeps the industry growth on track.

FundingSecure has been trusted by over 200 savers and has given more than 100k in loans. All of that was managed within less than 5 months. The average interest rate set by borrowers to savers has remained almost a constant during that period – never less than 11%. FundingSecure allows its borrowers to repay within 6 months, thus ensuring quicker returns to savers. If you’d like to learn more about FundingSecure, head to their website where you can calculate your potential return as a saver or make a loan enquiry.


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