[avatar user=”Ian Anderson” /]
As the P2P industry has matured, a new class of investor arrived aggressively in 2013 and included the very institutions that P2P was meant to bypass, the Banks. In the US big financial firms, not small investors, are now dominating lending on the two biggest leading platforms, Prosper and Lending Club.
At Prosper, which has been aggressively courting institutional lenders over the past year, more than 80 percent of the loans went to those firms in the last quarter. Lending Club and Prosper now set aside a randomly selected pool of loans for institutions which prefer to swallow up whole loans rather than finance a piece of them, meaning 100s or millions of dollars and pounds have now been lent from banks.
But why do they want in?
Ageing and creaking Bank technology with outdated risk models has significantly held back banks in recent years. Their ability to widen their offering and effectively manage the decision making process is further bottlenecked at branch level with inexperienced staff.
Banks recognise that the technology of P2P platforms and their innovative risk analysis, often using ‘big data’, gives them a fast way to lend without the investment in their own technology or increasing their overheads. P2P is also transparent, investors are matched to risk appetite and all risks are known up front with no hidden fees – quite frankly it’s surprising to this author that it has taken them so long to get involved.
One thing is for sure, Banks will come to dominate the future of P2P lending and it’s just one reason why in the US the sector now refers to itself as Marketplace Lending to better reflect this seismic shift in investor.