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P2P Lending: Responding to Disruption

Published By :

Verdict Financial

Published Date : Jan 2016

Category :

Banking

No. of Pages : 13 Pages

P2P platforms have grown exponentially in the last couple of years. Their superior customer experience, speed, and ultimately cost of credit have allowed P2P lending platforms to compete for banks' customer bases directly. P2P lending platforms are not attempting to serve a previously underserved segment of the market, but lucrative creditworthy borrowers. Alternative credit risk models are a key competitive advantage for P2P lending platforms, enabling cheaper cost of credit through more accurate default risk assessment. The more customers P2P lending platforms acquire, the more refined their credit risk models become and consequently the cheaper the cost of credit.

Key Findings

  • P2P lending platforms have a 400-425 basis point advantage over traditional banks in loan origination.
  • Retention of customers who have used a P2P platform before is high, with 75% saying they would approach one again when seeking a loan.
  • Fractional lending and alternative credit risk assessments allow platforms to reduce exposure to default and asses risk more accurately than banks.
  • The domination of institutional investors does pose a risk to the sustainability of some P2P platforms.

Synopsis

Verdict Financial's P2P Lending: Responding to Disruption report is a comprehensive analysis of the rise of Peer-to-Peer consumer lending and its impact upon retail banks' borrowers. The report details the impact of P2P lenders upon banks' deposit bases. The report shows the growth of P2P lending platforms across the globe and highlights which markets are most at risk from disruption. Readers will gain a thorough understanding of the development and evolution of P2P consumer lending over the last decade. In addition, the report focuses on how P2P lending works and how this contributes to the platform's competitive advantage. Lastly the report recommends improvements banks should make to their own business, in addition to highlighting their own strengths in relation to customer lending and how these can be leveraged to compete with P2P lending platforms.

Reasons

Table of Contents

Executive Summary
P2P lending platforms are leaner, more dynamic, and more customer-friendly
P2P lending is rapidly growing in the UK due to conducive regulation, as well as the platforms themselves
Key findings
Critical success factors

Introduction To P2p Lending
Banks face a formidable threat from a faster, cheaper, leaner rival
Chinese banks are most exposed to the greater competition from P2P lending
This report focuses on the threat to banks' loan business rather than deposits
P2P platforms hold a 400+ basis point cost advantage over traditional banks
Returns have attracted large institutional investors to P2P platforms
P2P platforms have directly targeted the banks' core prime customers
P2P platforms are building strong levels of advocacy
Strengths of P2P platforms
Fractional lending reduces default risk and lowers interest rates for borrowers
Intermediated funding models provide P2P platforms with faster and easier loan origination
Deeper, more accurate credit risk models allow P2P platforms to offer more competitive rates
P2P lending platforms have high retention levels among borrowers
Key takeaways

Appendix
Abbreviations and acronyms
Methodology
Verdict Financial's 2015 Retail Banking Insight Survey
Markets included in each region
Bibliography
About Verdict Financial
Disclaimer

List of Table

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