P2P Lending

This Financial Insights Perspective provides the FinSights Advisor's weekly perspective on the financial services industry. It provides financial institutions with timely guidance about maximizing one's technology investments. This week's issue focuses on peer-to-peer (P2P) lending, also known as P2P lending and social lending. The current economic environment and stalled credit markets in developed nations are turning some consumers to peer-to-peer lending as a lender of last resort. In developing economies, P2P lending is a novel way to satisfy demand for microlending and small business investment.

P2P lending is currently a small share of consumer lending globally, and some are predicting its significant growth. However, Financial Insights believes that while growth potential may lie where underserved yet creditworthy borrowers can be found, profitability is likely unattainable in developed economies where it becomes a matter of adverse selection. The tables are turned when the situation is more of a charitable cause. In this light, what is the value proposition for investors in social lending communities? Which P2P business models are poised for success? Or are the real returns of P2P lending based on altruism? For forward-thinking financial institutions, are there interesting opportunities in the P2P space?