Pricewaterhouse Coopers is out with a study on “how peer-to-peer lending platforms are transforming the consumer lending industry“.
Says PwC: “Although still in its infancy as a market, US P2P platforms issued approximately USD 5.5bn in loans in 2014. The banking community is justifiably taking notice of these emerging competitors. P2P lending’s expansion into mortgage and other asset classes means that P2P is no longer merely a way to obtain small-dollar-amount personal loans, which banks might not see as core to their business offering, but instead is a potential threat to banks’ existing customer bases. The lower cost-structure associated with online originations creates the potential for P2P platforms to offer borrowers attractive rates.” PwC’s analysis indicates the market could reach USD 150n or even higher by 2025, i.e. 27 times last year’s size.
US peer-to-peer lending platforms’ origination volumes have grown an average of 84% per quarter since 2007. Despite this rapid growth, the current volume represents only a small fraction of the eventual potential market for P2P lending, and the Federal Reserve Bank of Cleveland notes that the market is poised for further growth. As these lenders become more mainstream and diversify into other asset classes, which many are just now beginning to consider, they will have the opportunity to reach vast new segments of untapped market potential.
Projections for the longer-term growth of the peer-to-peer market vary considerably, with one venture capitalist projecting volume as high as $1 trillion by 2015. PwC’s review of the potential market indicates that reaching $150 billion by 2025 would not only represent a significantly slower growth rate than that seen in the past few years, but could be achieved even without the potential for growth into other asset classes. To reach this figure, peer-to-peer lending platforms would need to capture 10% of the $800 billion in revolving consumer debt and 5% of the $1.4 trillion of non-revolving consumer debt held by financial institutions. Although this would be a substantial undertaking for peer-to-peer lending platforms, it’s a realistic scenario given their explosive growth rates. The International Organization of Securities Commissions estimates that global peer-to-peer originations could exceed $70 billion within just the next five years, with the United States currently leading the way as the largest market.
PwC comes to the conclusion that consumers are hungry for a simplified, streamlined lending process, and peer-to-peer companies are capitalizing on this need — creating a loyal and growing following. It’s this recent growth, and future growth potential, that has banks taking notice. Peer-to-peer lending has already begun its expansion beyond simple loans largely used by consumers to consolidate credit card debt. Auto loans and mortgages — once the territory of “traditional lenders” — are now part of some trailblazing peer-to-peer lending platforms’ offerings.
Many financial institutions are beginning to examine the changes that are on the horizon. As a new competitor, P2P companies could shake up the market; but along with any disruption is the potential for opportunity. The question financial institutions should start considering is whether their organizations will collaborate or compete with peer- to-peer lending platforms.
We at Nordic Investor believe that Europe’s leading player, TrustBuddy, is well positioned to benefit from the latest trends and developments. Following its recent acquisitions of SME P2P lending provider Geldvoorelkar and long-term P2P consumer loan provided Prestiamoci, TrustBuddy offers the whole spectrum of P2P lending and is aggressively expanding across Europe. What makes TrustBuddy all the more interesting for investors is the fact that its valuation is significantly below its listed peers in the US, Lending Club (LC) and OnDeck Capital (ONDK).