Twenty years ago, lending options for businesses and individuals were pretty limited. Unless you were lucky enough to find a generous private benefactor, banks and credit unions were typically the only viable loan providers. Then, as the Internet matured, a new type of lending emerged. Today, Peer-to-peer lending or crowdfunding platforms, wherein groups of people pool their resources to provide capital injections for various enterprises, have developed into a multi-billion dollar global industry.
Proponents of the trend have called it a democratization of finance. Other economists have issued warnings about the potential pitfalls of peer-to-peer lending options, arguing that they are prone to a general lack of due diligence and could result in huge losses for investors. Whether or not these warnings are warranted, one thing is certain – peer-to-peer lending is experiencing explosive growth.
In 2015, more than one million people in the U.K. participated in crowdfunding or peer-to-peer platforms. This constitutes an 84 percent increase from 2014. Globally, peer-to-peer lending grew by 100 percent between 2013 and 2014 according to research commissioned by the SDA Bocconi School of Management in conjunction with CRIF Lending Solutions. That some study, conducted in 2014, projected that peer-to-peer lending platforms would be worth $34 billion by 2015.
So what does this sudden influx of investment capital mean for the lending market as a whole? According to Simone Cappechi, Sales & Marketing Director at CRIF, it may not be especially disruptive to banks in the short term, but it could be the beginning of a paradigm shift in the way we think about financing options.
“In terms of the future, it is considered that traditional money intermediation is the foundation of commercial banking activities, and its potential erosion could have limited direct effects on financial results,” said Cappechi in a statement. “The development of new models such as P2P lending could, however, have significant consequences for the entire financial intermediation model.”