Market Dynamics

The emerging popularity and public acceptance of the blockchain technology and crypto-markets recently have triggered a huge paradigm shift in multiple industries. In finance, disruption of the normal pace is inevitable as crypto-currencies and blockchain technology made financial services more accessible to everyone through peer-to-peer (P2P) interactions eliminating banking institutions in the equation making each financial transaction simpler, faster and a lot cheaper.

The first point of entry in a formal financial system is a bank account. Be that as it may, about two billion individuals around the world still remain unbanked. On the other hand, digital forms of money have been growing by leaps and bounds in the last three years. The Blockchain which was ranked one of the top 10 emerging technologies in 2016 by the World Economic Forum has been predicted to be responsible for holding 10% of worldwide gross domestic product (GDP) by 2025. In 2015 alone, the capital investments surpassed $1 billion. It has also been predicted that every middleman in the finance sector, whether moving, storing, lending, trading, or attesting to money, will be affected by the Blockchain.

Growth of P2P (peer-to-peer) financial market around the world has tremendously increased over the past few years and is expected to hit a Compound Annual Growth Rate (CAGR) of 51.5% by the year 2022. The P2P lending industry, (also referred as marketplace lending), is among the fastest growing segment in the financial lending market as it provides an alternative way of lending money w/c is more simpler, faster, and cheaper due to its lower loan interest rates. Through the utilization of marketplace lending platforms, it became possible to connect and match individual consumers/borrowers with investors/lenders wherever they are in the world. And since the P2P lending market is driven with a blockchain technology, every transaction is secured, guaranteed investment transparency, and lower interest rates to consumers.

Looking back to a few years ago after the financial crisis in 2008, a growing number of banking and financial institutions are trying to decrease the financial leverage of traditional market and market loss risk by divulging in alternative lending activities such as crowdfunding, peer to peer lending. This has led to the decrease of loan finance for small and medium-sized businesses, individual borrowers, as well as for those start-up companies that could bring competitive advantage (wherein consumers will supposedly reap all the benefits) as they are considered to be risky by the traditional banks as they might not be able to repay the loans at all.

The P2P Financial industry has successfully filled a massive and long required need for an alternative lending platform other than the traditional banking system. The evolution of technology has led to easy access capital for micro, small and medium enterprises.

Due to its lesser operating cost and low market risk, peer-to-peer (P2P) lending companies have stepped-in, to capitalize on the opportunity available to help grow small business borrower’s needs predominantly to those who have been rejected by banks. Thus, small businesses as well as start-up companies act as major end-users in peer to peer financial marketplace.



HOW DOES P2P MARKETPLACE WORK?

In common practice, a bank serves as the middleman of two parties, taking the risk but also the majority of the return thus, investors only get a fraction of the profit. P2P lending is a type of crowdfunding which involves the easy availability of loans outside of the traditional consumer banking system by providing borrowers a platform to interact with lenders, or investors, via the P2P lending service providers. The use of Internet platforms reduces costs by excluding operational expenses which are associated with the traditional banking system, such as the cost of maintaining and staffing, physical branches etc. The peer-to-peer (P2P) websites offer a protection from market losses incurred due to non-payment of loans by maintaining certain funds. Also, peer-to-peer lending allows one to participate in pools of loans, thus, limiting the market risk which got evident during the recession period.


Asia-Pacific is a Lucrative Peer-to-Peer Lending Market

In 2015, P2P lending market share in China took off and have attracted much investment as well as controversies. Investors were frustrated by the low rates offered by traditional banks in China, so P2P service providers have replied too well to banking also known as shadow banking in lieu of finding better returns. The P2P lending market uses online platforms and allows effective access for borrowers and lenders. Over the past years, the P2P lending market share of companies in China had easily tripled w/c clearly shows how this industry can significantly grow in just a short period of time.

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