What is P2P lending?
A peer to peer or P2P lending market is primarily a platform wherein two individuals are encouraged to interact and carry out transactions with each other without the interference of a third party intermediary or interface. It aims at decentralizing the business sphere by providing an alternative to traditional capitalism. P2P lending, in a similar manner, allows a direct loaning of capital to those who need it.
P2P lending in simple terms involves the lending of money to an individual or an upcoming business without the interference of any formal government/private guarantee. The most relatable example is the loan one receives from family and peer in the desperate time of financial anxieties. The trajectory of P2P lending can be traced back to the limited kingdom where it first emerged in the form of Zopa and now amounts to over 500 million pound worth loans issued. The idea was then adopted by Prosper and lending club in the United States followed by society one in Australia in 2012 and harmony in 2014 in New Zealand. The P2P platform in India with i-lend was embraced in 2012 and has been on an exponential rise ever since.
How big is the lending market? The potential for P2P lending in India is immense. India is already considered to be the largest P2P market in the offline world and the online platform is highly promising. What adds to its attraction as a lending platform is the fact that it caters to financial anxieties in a shorter time frame with almost negligible terms and conditions.
The expansion rate of P2P in India has been considerably high since its institutionalization in 2012. While there is no official data to account the exact/total lending that has been transacted but according to a variety of sources, lending through this informed sector has been rapidly growing.
The emergence of India Stack
One of the major drawbacks that P2P lending suffers from is the absence of a formal and legal agreement to govern the lending of any loan. India stack under the Digital India initiative by the government has been a revelation to deal with the absence of formal binding in the form of e-sign. E-sign allows a paperless and effortless process of signing a legally binding loan agreement between borrowers and lenders online. It has also been instrumental in reducing human interference and thereby speeding up the whole process of lending.
Problems and Challenges
The conventional lending market place, consisting of formal loan companies and banks, is often an obstacle to small businesses which aspire to acquire loans. The traditional loaning process involves complex human intervention which is highly time-consuming and thereby decreasing efficiency in dispensing loans and at the same time, young entrepreneurs and individuals with a bad credit score are often denied loans in the absence of asset- lending or worthy collateral.
P2P marketplace has come as a rescuer of the startup generation, providing loans in a quick and minimally rigid manner with negligible constraints. The rising P2P marketplace is giving an institutional structure to the erstwhile informal lending mechanisms of borrowing from one’s social circle, thereby giving formal recognition to direct transactions or exchanges.
P2P lending, like any other advance in the FinTech sector, has been a major blow to the conventional financial sector with the introduction of technology. The online P2P marketplace, with the introduction of E-Sign, has been a revolutionary step in the promotion of startups to acquire loans more conveniently at a faster pace without facing any public shaming for their credit scores. P2P has truly democratized the lending space around the world and is set to grow exponentially in the coming years.
We at Recro, provide end to end IT services and have served various startups in the FinTech domain.The team has deep experience in building platforms for Lending, P2P, Insurance comparison and Stock Market trading apps. If you also have an idea that you want to develop, do drop us a mail at: firstname.lastname@example.org