Even Staff

2016-05-26

P2P Lending: The Uber of the Financial Industry

The rise of the “on-demand economy” has ushered in a new breed of businesses that operate based on the idea that customers can play a larger role in their experiences. Companies such as Airbnb, Snapgoods and RelayRides have all burst on to the scene as a result of the push toward putting more control in the hands of the modern customer. Perhaps no company exemplifies the disruptive potential of the on-demand economy more than ride-sharing company Uber. While Uber is already making waves in the transportation industry and turning the traditional taxi business upside down, peer-to-peer (P2P) lending companies pose a similar threat to traditional banks.

 

Uber’s Big Splash

 

Most of these new on-demand economy businesses come about when a traditional, established business leaves open a window of opportunity due to inconvenience, inefficiency or high costs. In the case of Uber, the traditional taxi business in major U.S. cities has historically included a bit of all three of these characteristics. Uber founders recognized that the idea of standing on a street corner and helplessly flailing a hand in the air or calling a dispatch operator and hoping that a cab will show up within the next several hours is not the optimal way to get from place to place in a modern city. In a matter of years, Uber has gone from an unknown startup to a $41 billion company with 160,000 active drivers that have generated more than half a billion dollars in fares.

 

Take Control Of Lending Banking customers have the same helpless feeling of someone standing on a busy street corner hailing and whistling for a lone passing taxi. To borrow money, you must meet the bank’s qualifications, the bank’s credit score, pay the bank’s interest rates and bend over backwards for the bank. On the other hand, if you want to get paid interest on your capital, you must agree to whatever interest rates and terms the banks set on CDs or other financial products. When it comes to traditional lending and borrowing, there is little to no negotiation and little choice in the matter. Sure, one bank’s terms might be slightly better than another, but there is generally very little difference between competitors’ lending and borrowing standards.

 

The Freedom of the Marketplace Marketplace lending companies have recognized that both lenders and borrowers want more freedom when it comes to loan creation. Instead of a complicated, time-consuming process, borrowers can go online, enter a few critical pieces of information and be matched with a lender within a matter of hours. Instead of being turned down because a particular loan does not meet the standards of a bank’s core lending business, these online platforms allow both borrowers and lenders to create loans that are outside the box of traditional bank lending.

 

 

Disruptive Power Traditional banks likely looked at marketplace lending the same way that the taxi business looked at Uber when it first launched. However, like Uber, marketplace lending’s true potential is beginning to turn heads.   According to a PricewaterhouseCoopers (PwC) report, P2P platforms accounted for about $5.5 billion in loans in 2014. While this number is only a drop in the massive present-day banking ocean, PwC analysts project the market could balloon to $150 billion over the next decade.

 

Wake-Up Call The on-demand economy is still in its infancy, and certain segments, such as ride-sharing, have gotten off to a strong head start. However, more people are beginning to recognize the true potential of putting the power in the hands of the customer. As the movement toward alternative finance continues to grow, traditional banks could be in for a major wake-up call. 

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Even Financial Partners with Figure to Add Blockchain-Enabled Personal Loan Products to its Financial Services Marketplace
EVEN
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