Myths and misconceptions about P2P lending

The world of marketplace lending, or peer-to-peer (P2P) lending is still relatively young. At just over a decade old, there is still a lot of confusion surrounding how this democratization of finance works. In this post we look at common myths and misconceptions about this newest form of borrowing and lending.

P2P lending is an unregulated “Free for All”

Like the early days of music file sharing, many people believe that marketplace lending is free to operate without the restriction of law. This misconception likely stems from the fact that loans are originated by the people or companies without any actual control, unlike banks which are subject to regulations. The truth, however, is that all marketplace lenders have a partnering bank. This bank is subject to all the same rules and parameters of a conventional banking institution. In fact, we’ve written about how regulation influences marketplace lending previously on the blog.

P2P lending is dangerous because you don’t know who you’re lending to

The anonymity of the web has led many to believe that lenders are handing their money over to a void without ever understanding what’s within. This is untrue. Nearly all marketplace lenders offer accessible analytics (some more than others) that give dimension to the person or people borrowing from any given lender. On Bondora, lenders can research granular-level data concerning the income, work history and debt ratios of borrowers.

Measuring risk adequately in P2P lending is impossible

Some think that a lender can never truly understand risk. However, as P2P lending has matured analytics have improved. All major lenders offer loan rankings that allow investors to quickly assess the risk of a loan. If a user wants to go deeper, they can often pull aggregate data from the site to determine default rates across all lenders. Meanwhile, third party sites like Orchard and dv01 have emerged as resources for providing independent data on rates of return.

P2P lending and traditional banks are at war

While some banking institutions are feeling competitive pressure from P2P firms, the two entities are finding ways to work together. Banks want updated methods for reaching a younger and wider demographic. Marketplace lenders in various forms can help provide this inflow. At the same time, marketplace lenders can benefit from the deeper reserve of capital available at banks that have had a longer history.

How to predict if a borrower will pay you back

Without risk there is no reward.

All investors accept some degree of risk, that’s the cost of entering the game. Understanding this truth, however, is only the beginning. Investors must ask themselves how much risk they’re willing to incur in their reach for a larger return. Marketplace lending has made this question more complex.

Marketplace lending operates off a basic framework of joining borrowers with lenders. The cost of engaging in this form of finance is low due to the ease afforded by technological solutions. While this digital exchange enables speed it simultaneously obscures the understanding of what factors influence borrower behavior, namely repayments.

Lenders can benefit from greater insight into borrower behavior as a means of mitigating risk. If we can more accurately predict what causes borrowers to default we can make more strategic decisions when investing. The problem: P2P lending is a relatively new market and data has been scarce, until now.

Evaluating future behaviour of borrowers

The researchers behind the article Determinants of Default in P2P Lending exhaustively reviewed nearly 25,000 marketplace loans. Their goal was to form a more concrete understanding of what factors signal future borrower behavior. In short, they want to know what borrower characteristics are red flags for lenders.

One of their first findings confirms that the traditional risk/reward relationship is alive and well with marketplace lending. “The higher the interest rate, the higher the default probability is” determined the authors.

However, their deeper dive into the data also offered some unexpected revelations. “Loan purpose is also a factor explaining default: wedding is the less risky loan purpose and small business is the riskiest.” This discovery illustrates the complex nature of risk assessment; even non numerical data can illuminate default risk. Not surprisingly, factors like annual income, current housing, credit history and indebtedness are all powerful variables in predicting default risk.

Meanwhile, loan amount and length of employment had little or no bearing on a borrower’s ability to repay their obligation in their data set. Many investors would be surprised to learn that loan purpose has more predictive capability than employment data. For this reason the researchers warn that many lenders may give imbalanced or disproportional weight to a long list of factors. The result of this “asymmetry” is flawed risk analysis.

To avoid this problem investors can start judging default risk based on a few simple metrics. For example, one study in the Journal of Central Banking Theory and Practice determined that “Longer term loans are more risky than shorter term ones.” This makes intuitive sense given that over a longer time horizon there is a greater probability of life events that could arise and derail a borrower’s plans to repay. Specifically, 60-month loans are statistically more risky than 30-month loans. This same study had its own unique conclusions, finding that in terms of loan purpose, the least risky loans “are those for credit card payoff.” This outcome adds dimension to the above data.

Of course only so much information is available to lenders. To effectively gauge risk a lender must consider all available metrics while focusing more heavily on those that have been proven to predict outcomes.

What is diversification and how does it work?

Would you save one year’s worth of your salary to buy a flower? There was a time when many people would.

During the Dutch Golden Age people were amazed with the ordinary tulip bulb. At the time, the flower was considered a thing of rare beauty. Everyone had to have one. Some reports claim that at the height of the excitement a single tulip bulb cost ten times the average annual salary of a craftsman. Financial markets sprung up around the flower. Futures markets emerged. By 1636 the mania reached a peak. The plague was the only thing that could stop the bubble. Eventually prices crashed and investors were crushed.

What could have avoided these lost fortunes? Diversification.

Diversification is the oldest and most important strategy for investors. When you spread your money across many different investments you are diversifying. The idea is simple: if one investment drops (or crashes) you don’t lose everything.

Investors put this principle into place by investing in different stocks with mutual funds. These funds allow investors to purchase a single share that gives them exposure to hundreds of companies. However, this style often doesn’t offer enough diversification.

Investors often choose to go further and diversify among asset classes. This method means investing not only in various stocks but also different kinds of investments like bonds or even commodities like gold and other precious metals. This method is called asset class allocation. For a long time this approach served investors well. Then, the financial crisis hit.

In those difficult years investors discovered that even asset class allocation could fail. Why? During times of crisis the correlation among these different classes can rise. “During the two significant bear markets of the last 10 years—correlations between many individual investments and even asset classes spiked,” according to BlackRock.

What’s the solution? Alternative investments.

More investors are learning that they need to broaden their exposure to alternative investments to help weather uncertain markets. Examples of alternative investments include currency, short-trading and of course alternative lending.

Investment opportunities offered by P2P lending have lower correlations to traditional assets like stocks and bonds because the influencing factors are different. As a result, investors can continue to seek high returns while diversifying risk across assets that move in different ways. The value of alternative investments is seen in the growth of a hypothetical $10,000 investment from June of 1997 to June of 2012. A portfolio including alternative investments would grow to nearly $60,000 while a portfolio of 60% stocks and 40% bonds would reach only approximately $25,000.

In today’s world economies are more connected than ever. For this reason, investors need to rethink outdated strategies of relying on just stocks and bonds.

Most common online lending marketplace models in Europe

Alternative finance and online lending has become modern investing terms. The phrase represents the democratization of lending and borrowing without the need for traditional financial institutions.

However, some are surprised to learn that within alternative finance there are various models. Here we offer a breakdown of some of the popular models including our own.

Direct Online Lending

Direct lending is probably the closest equivalent to the term peer-to-peer lending. Bondora is a direct lender/P2P lender. Essentially this means we connect borrowers with lenders directly. In fact, ignoring banks is part of the appeal for most investors. Direct lending grew from the rubble of the global financial crisis. This model helps drive down costs by leveraging technology, reducing overhead and relying on superior credit analysis programs.

Marketplace Lending

Here investors can choose to invest in loans designed to serve business in various sectors. The loan originators involved might issue automotive loans, mortgages, business loans, personal loans and even agriculture loans. In marketplace lending model, multiple institutional loan originators offer a more scaled up market for investors. The downside of having multiple loan originators on one platform is that the loans might be issued by different standards, scoring models etc which keeps the decision-making less transparent for investors.

Marketplace lending can also work in conjunction with traditional brick-and-mortar banks. The capital reserves of a conventional bank offer stability for online lending businesses. Meanwhile, banks benefit from the growth, scalability and technological innovation of marketplace lenders. Online lending marketplaces have become so attractive for institutional or big corporate investors, that vast majority of total funds invested are provided by them.

Crowdfunding

With crowdfunding model investors are committing cash to a singular project or venture with a clearly defined cause or end goal. Today this market is worth billions. Here, there are two main types. The first offers a pre-sold service or good to the investor. The second offers shares of a company for the capital committed. The latter of the two represents an investment in the truest sense. You’re making an upfront commitment in the hopes that your equity shares have value in the long-term. Given that the project has a completion date these ventures are not perpetual as some of the other models are. Essentially, the investor either makes some money or no money. Risks are high and a return can take years, but in case of success the returns can later pay big dividends.

How regulations influence marketplace lending

Marketplace lending (MPL) emerged from the rubble of the global financial crisis. Online communities discovered that lending and borrowing could occur outside the traditional banking sector regulations. Now, over a decade into an era of democratized finance, it’s clear P2P is here to stay.

However, many have questioned how regulations will develop. While some initiatives have been proposed lenders and borrowers alike are unclear on what governing body will prevail and what rules will be enacted.

Here, we look at how regulations have unfolded to date and what new developments we’re likely to see in the future. To better answer these two questions we’ll examine the industry within three regions, Europe, the UK and the U.S.

Europe

A 2016 comprehensive review of marketplace lending across 27 European countries reached some insightful conclusions. Researchers discovered that countries adopting a progressive stance on MPL saw increased volumes in the industry. One clear example of this phenomenon is the UK where registration obligations and tax reliefs are designed to be more welcoming of P2P firms.

However, this finding is based on limited data due to another finding; data on volume totals in countries is scarce. This has prompted many to call for increased transparency. This open information approach will be particularly important for countries with a cross border presence. This kind of geographic reach has made several firms successful but investors are looking for more data of recoveries and defaults.

How are regulations answering these calls? An advocacy group called the Marketplace Lending Association has formed to encourage uniform practices within MPLs. The main areas of reform they’re seeking are:

  • Transparency: Accuracy in loan performance data and historical returns.
  • Responsible Lending: Avoiding Payday Loan practices & protect borrower rights.
  • Safety: Proving liquidity cash reserves and business contingency plans.
  • Governance & Controls: Keep investor and operating funds separate.
  • Risk Management: Customer authentication and anti-money laundering.

For now these are recommended guidelines. Legislation has not yet made all of these parameters the rule of law. Those participating in MPL today can expect future regulations to resemble this list. Some in Europe are looking to the more developed regulatory landscape in the U.S. for guidance.

U.S.

In the U.S. all peer-to-peer firms are required to register with the Securities and Exchange Commission (SEC) which is the regulatory body overseeing all aspects of investments. Early in 2016 The Consumer Financial Protection Bureau (CFPB) started accepting complaints from consumers using MPL sites. The CFPB has stated that all MPL firms are required to comply with state and federal financial protection laws. However, as of now the CFPB does not conduct direct oversight of the MPL industry.

In the future, the Department of the Treasury will likely create more robust standards for MPLs. They began this initiative in 2015 when they sent out a Request For Information (RFI) seeking input from consumers, small businesses and the economy. Using data from this RFI the Treasury will build a framework for regulations. Some areas that the Treasury will likely make their focus include:

  • Securing digital information of lenders and borrowers.
  • Expanding credit offerings to currently underserved markets.
  • Accuracy and thoroughness in credit risk measurements.
  • Maintaining fraud detection.
  • Improving safeguards against cyber threats.
  • Monitoring success of collection efforts.
  • Openness in sharing default data and general transparency.

As regulations emerge the Treasury is likely to also turn to the United States Government Accountability Office (GAO) which has conducted research on marketplace lending risks. In one of their earlier reports the GAO found that additional protections might be needed for borrowers. Some loan applications require so much information that the borrower’s identity may be discoverable by others.

At the same time, agencies agree that a certain level of information on borrowers must be provided to lenders so they can make sound risk assessments on their investments. Future regulatory changes will address these concerns.

UK

Marketplace lending has its origins in the UK. The first P2P firm came from Great Britain. With a longer history the country has had more time to build a framework for regulation. In 2014 the Financial Conduct Authority (FCA) began regulating this industry. “Our focus is ensuring that investor protections are appropriate for the risks in the crowdfunding sector while continuing to promote effective competition in the interests of consumers,” remarked the FCA CEO.

This organization has the most stringent and direct oversight of any group in the U.S. or Europe. In some cases the FCA has issued communication to UK P2P firms with explicit warnings regarding their conduct. For example, in the first quarter of 2017 the FCA told marketplace lenders that firms borrowing funds must first have a license to take deposits. Though the act is illegal on the side of the borrowers the P2P firm is also responsible since they’re permitting the act.

After concluding a 2016 inquiry the FCA proposed the following rules:

  • Side by side P2P comparisons must be made simpler.
  • Risks must be clearer and more finely measured.
  • Promotions must be more transparent regarding risks.
  • Risks arising from new complex structures must be explained.
  • Provision funds must be acknowledged as they can mislead on risk.
  • Contingency plans must be drafted for P2P firms that go bust.

The general conclusion of the FCA CEO was “we believe it is necessary to strengthen investor protection in a number of areas.”

The limited regulations across the U.S., UK and Europe illustrate how young the industry is. For the moment this fact puts a lot of burden on the consumer to investigate the risks and rewards of different MPLs. However, this is also difficult given that some MPLs don’t offer enough data for the investor to make an informed decision. For this reason we’ve always worked to keep our users in mind when creating transparency and clarity regarding interest payments, risks, originations, portfolio performance, defaults and recoveries.

How Bondora is leading transparency in the P2P world

Transparency has never been more important for the future of marketplace lending. The growth of the industry depends on the trust of investors. However, earning this trust will not come easily. A recent study from the CFA Institute found that “financial services remains in the bottom tier of trust relative to other industries.” In fact, trust in the industry falls below banks and pharmaceuticals.

At Bondora we strive to earn this trust through transparency. Regulatory agencies such as the U.S. Department of the Treasury have defined transparency as “clear, simple, and consistent terms that borrowers and investors can understand,” and continues that some P2P firms “are neither clearly nor systematically disclosing information to borrowers and investors.” Financial regulators in Europe have expressed similar concerns. As the P2P industry grows at an accelerating pace the necessary regulatory framework struggles to keep up.

At Bondora we’re taking the initiative rather than waiting for the development of oversight rules.

We want investors and borrowers to be comfortable today, not later. Therefore, we offer analytics and details to our users. The result of this “open book” approach is a culture of visibility; you’ll always have all the data necessary to make informed decisions. For example, Bondora was the first marketplace in Europe with a public API and granular performance data. Additionally, we were the first marketplace to make loans across markets comparable. Today we offer:

  • Monthly Recovery Performance Reports
  • Monthly Portfolio Performance Reports
  • Individual Returns Compared to Other Investors
  • Net Interest Received
  • Cumulative Cash on Cash Returns
  • Loan Ratings
  • Planned vs. Received Payments
  • Cash Flows From Recoveries
  • Cumulative Recovery Rates

When examining a loan, users can drill down to learn more about the borrower than what is published on most other P2P sites. We offer information like age, location, employment duration, education level, income, liabilities, home ownership type etc. This granular level information coupled with other loan specific data provides a dimensional picture of the borrower so the investor can decide for themself if they’re comfortable with the risk/reward profile.

Borrower and loan data points

While some firms have addressed transparency by forming special organizations we’ve responded by sharing more information.

We believe not only in sharing data but making it more accessible and clear. For this reason we have developed a refreshed statistics page which presents users with performance and risk metrics in easy to understand graphics. These characteristics of the Bondora platform are what our users want. How do we know this? We asked them. We’ve conducted interviews with users over the phone or web to better understand their questions and made that feedback into a reality.

These discussions have helped us develop proprietary credit scoring models which helps users assess the risk profile of loans. As our CEO Pärtel Tomberg explained, this feature brought “simplicity and transparency to investing by assigning each loan application that comes to the market a standard rating, from AA to F.” Investors appreciate knowing the range of possible outcomes.

These ratings have become part of other transparency efforts like our monthly recovery performance summaries. Here, we offer a clear and direct analysis of our efforts to recover funds from late borrowers and defaulted loans. These regular posts on our blog work in conjunction with our portfolio performance summaries which detail realized net returns.

At Bondora, what you see is what you get (and you’ll see a lot).

Not only do we make data accessible, we promote it. With our weekly posts we invite users to explore the easy ways they can get and use data. Unlike other providers we keep information right in front of our investors with regular blog posts and videos.

Transparency is what makes Bondora different from most other P2P firms in Europe, the UK and the U.S. Some industry watchdogs have discovered that some marketplace lenders have mislead investors with false loan performance data. In these cases the firm has intervened and made payments on faltering loans to artificially improve performance metrics. By making all necessary data public and accessible, you add another layer of trust and security for the investors on your platform. This is what Bondora aims for.

The concept is simple: More transparency means more trust.

Bondora Capital is searching for a Chief Accountant

Bondora Capital

How Bondora is different

Bondora empowers communities by leveraging technology to connect investors and borrowers. Our model makes affordable, fast lending accessible for underbanked regions.

Our marketplace investor base is largely retail with over 25,000 investors from 67 countries. The transparent framework of our business has given users the confidence to invest more than 90 million euro delivering nearly 20 million euro in interest.

The result: 89% of investors earn more than 10% annually and borrowers get loans without hassle. Our marketplace lending solutions have generated returns above peer groups since 2009.

Our new team member:

  • Has analytical thinking, is precise and detail oriented
  • Not thrown by changes and is easy to communicate with
  • Loves to build and improve systems that reduce everyday work
  • Has professional experience in working with accounting software
  • Has a good level of autonomy and ability to prioritize
  • Is fluent in English and Estonian
  • Holds a degree in finance or accounting and good knowledge of relevant law
  • Work experience in a financial institution will be a plus!

The responsibilities of the Chief Accountant would be:

  • Daily accounting tasks (invoices, payments, etc.)
  • Collection and archiving of accounting documents
  • Maintenance of the accounting database
  • Data systematization for controlling functions
  • Development of accounting processes
  • Preparation of monthly reports
  • Consolidation of Group companies
  • Preparation of documentation for internal and external audits
  • Review of costs and investments
  • Statistics reporting
  • Payroll accounting
  • Tax declarations
  • Preparation of annual and interim reports according to IFRS
  • Preparation of reports for the Financial Supervisory Authority

Joining our team you would get:

  • A chance to be a part of an international team of young professionals standing at the fore of the most powerful innovation of today: democratization of finance.
  • To show your abilities and excel in an environment that supports professional growth while maintaining a casual start-up mood
  • To work with a supportive and friendly team that loves team events
  • All the perks and benefits that go along with working at Bondora (from additional vacation days to snack-filled kitchen and everything in between…)

Place of work is in Tallinn, Estonia. In order to apply, please send your CV and cover letter to helena.sits@bondora.com.

Results for the survey we made on P2P income taxation

The strength of marketplace lending is that it brings people together. As our base of investors and borrowers grows the two groups can learn from each other. In keeping with this spirit we created a brief survey at Bondora about investment taxation.

We reached out to investors from countries that are most representative of our customer base. These experienced investors shared their understanding of the complex laws regarding marketplace investment income and how it’s taxed. In this post we’re sharing a summary of the answers we received. Please remember, these answers do not constitute official advice and the information is not from professionals. These are just survey results from Bondora users. We want to help develop an outline of the laws and regulations investors may want to consider as they prepare to seek professional advice.

We asked the following:

  1. What kind of income needs to be declared – Earned interest and secondary market capital gains?
  2. Can you offset losses against earned interest?
  3. When is the deadline for submitting the declaration?

Please see the below chart. The numbers 1, 2 and 3 correspond to the above questions.

P2P income taxation survey results

How to find information on your earned income on Bondora

REPORTS – Tax Report PDF

Go to the Reports page, choose the period and click on the PDF icon. The Tax Report will be created for you immediately. On the Tax Report PDF the most relevant rows are “Interest Received” and “Interest Repaid from Loans in Default”. Total interest received is the sum of the two.

If you want to know the earned capital gains from Secondary Market trading, the relevant values to look at are “Profit from secondary market sales”, “Profit from secondary market purchases”, “Losses from secondary market sales” and “Losses from secondary market purchases”.

Bondora Tax Report

Tax Report - Income Statement

Tax Report - Account Statement

REPORTS – Monthly Overview

The second option is look at the Monthly Overview report in the Reports page. Click on “Create new report” and check “Monthly overview” and choose your period. The relevant rows for you are “Repaid Interest”, “Repaid Penalties”, “WriteOffInterest” and “DebtServicingCostInterest”.

taxation of P2P investments

New bid allocation model levels the playing field for investors

Bondoras new bid allocation model

Marketplace lending is becoming a mainstream investment choice. However, as our investor base grows, so does the competition for loans.

Originally, if a loan received too many bids (overbid), Bondora would rank the bids based on size. Unfortunately, this method made it difficult for investors with smaller bids to get the loan. Some investors got their entire bid accepted while others were left out. Now, we’re changing the bid allocation model to be more inclusive to all bidders.

We will no longer rank the bids based on size. Instead, we will proportionally distribute loans among all investors trying to buy them. In short: All bidders will get a piece of the loan. This way everyone – big and small investors – will get access to the same loans.

Here’s an example of how the new system will work: A borrower requests a €1,000 loan. Several investors bid a total of €2,000. As a result, each investor who made a bid would have 50% of their bid accepted. This way each investor would be able to get access to all loans they want, albeit sometimes for much smaller amount they wanted.

When investors share concerns, we change and that’s why we’re implementing the new system.

This bid allocation model implementation will be automatic and requires no action from our investors. We will be removing investor ranking on 20th of April . However, please note that minimum investment size setting in the API and Portfolio Manager will become obsolete with this change.

Initially, there will be an absolute minimum investment size of €1 in order to facilitate investment level calculations using our current technology. Over the coming months we will however be rolling out a new infrastructure that allows fractionalizing loans to much smaller units making the proportional distribution even more precise.

You spoke, we listened.

Can banks survive marketplace lending?

Marketplace lending (or P2P lending) emerged from the rubble of the global financial crisis. Originally, it was a small industry of people seeking finance opportunities outside traditional banks.

Today, the industry is enormous. A 2015 estimate valued the marketplace lending world at $26 billion with an expected value of $897 billion by 2025.

Initially, many questioned the sustainability of the model. Now, more than a decade into its life, marketplace lending is here to stay. In fact, this fintech solution has been so successful that some have started to question how traditional banking models will compete or even survive in the future.

In this piece, we ask if banks can survive marketplace lending by exploring:

  1. How marketplace lenders compete with banks.
  2. How marketplace lending is diminishing the role of banks.
  3. How banks and marketplace lending might coexist.

How marketplace lending compete with banks

Conventional bank loans require lengthy vetting processes, slow credit checks, and mounting fees. P2P lending avoids these problems. The digital infrastructure needs no brick and mortar footprint. Therefore, operational costs are lower.

Meanwhile, P2P firms can move fast given the availability of credit information on the borrower. Some studies show marketplace lenders can operate at costs 60% lower than traditional banks.

These two key benefits of speed and affordability appeal to today’s younger borrowers. The new global workforce consists heavily of Millennials born between 1982 and 1997. This demographic understands and trusts technology.

At the same time, an older demographic is also seeking tech-enabled solutions to finance. Why? Because many countries simply lack the availability of banks. “About 2.5 billion adults lack access to formal financial services,” reports the World Bank. Marketplace lending solves this problem.

On the other side of the transaction are the lenders. Investors seeking diversification and growth opportunities are turning to P2P lending by financing loan requests. The growing popularity of marketplace lending is driving annualized returns for investors. As recently as 2014 a U.S. index of online lenders reported a return of 8.71%.

At Bondora, 89% of investors have earned over 10% annually. Investors can earn a return while managing risk by allocating their investment across dozens or hundreds of borrowers of different credit rankings.

Today, investors have originated more than $100 billion in P2P loans across the globe. As this trend continues, banks are questioning their role in the future of finance.

How marketplace lending is diminishing the role of banks

Banks have experienced a decrease in small business loan financing. “10 of the largest banks issuing small loans to business lent $44.7 billion in 2014, down 38% from a peak of $72.5 billion in 2006,” reports the Wall Street Journal. In the same period, non-bank lenders saw their market share increase from 10% to 26%. More people are walking away from banks and stepping into alternative financing.

Even the head of small business banking at TD admitted, “We all struggle to make money on the lending side.” The numbers support his claim; Since the financial crisis, the volume of small-business loans issued from banks has fallen by one-fifth.

Traditional banks are voluntarily exiting small business loans as P2P lenders claim more market share. With higher overhead costs they’re unable to profit from these loans. In today’s world competition moves fast. Small businesses need capital immediately to innovate and keep pace with changing industries. Marketplace lending can move just as quickly.

At the same time, the unsecured consumer lending market is growing in the P2P industry. In the U.S. alone “The largest online marketplace platforms originated over $5.0 billion of unsecured consumer credit in 2014 and over $10.0 billion in 2015,” reports the U.S. Dept of The Treasury.

It’s no wonder a survey from PricewaterhouseCoopers determined that 76% of respondents consider marketplace lending to be “important” or “very important” to the future of the banking sector over the next five years.

In response to mounting competition online, banks are exploring how they can embrace this innovation rather than fight it.

How banks and marketplace lending might coexist

Today, the line dividing P2P lenders and banks is blurring. In fact, “fintigration” has become a popular term for the growing partnership between banks and fintech. Banks will not disappear. However, their role will change because adaptation is critical to survival. “More than 90% of bankers project that Fintech will have a significant impact on the future landscape of banking,” finds a study from The Economist.

In short: banks can survive marketplace lending but only if they adapt.

This survival will likely come from partnerships between banks and marketplace lenders. The bank’s benefit of such a collaboration seems clear. The bank can leverage the popularity of online solutions to gain more customers and improved operating efficiencies. Meanwhile, some P2P businesses will benefit from the resources, scale, and built-in customer base of banks.

Banks need marketplace solutions, but P2P might not need banks.

Partnerships like this have a long way to go. Banks are only now beginning to rediscover their role as marketplace lending casts a bigger shadow. In the meantime, speed, service, and low costs continue to resonate with P2P customers.