KEY POINTS

  • Peer-to-peer (P2P) lending platforms offer loan opportunities outside of traditional lending institutions. P2P platforms leverage metrics such as credit scores and social media activity to link borrowers and lenders at favorable interest rates. Platforms have lower regulatory burdens because they are merely acting as intermediaries between borrower, lender, and partner bank, and thus can keep fees and rates low.
  • The P2P lending industry is seeing significant growth, especially in developed countries with strong financial markets. P2P lenders in the US generated $6.6 billion in loans last year, up 128%. 
  • P2P borrowers are often individuals seeking to refinance debt at reasonable rates or small businesses that have trouble getting low-value loans from traditional institutions. Lenders are typically individuals seeking a higher rate of return than can be garnered from other interest-bearing accounts. In addition, larger financial institutions, like hedge funds, have begun buying up pools of P2P loans. 

This research is meant to give a brief overview of how peer-to-peer lending platforms work and why they solve some of the basic inefficiencies of the traditional lending model, and should not be taken as a comprehensive explanation of all mechanics underlying these platforms. It serves as a companion to our report, "THE PEER-TO-PEER LENDING MARKET REPORT: The leading countries for alternative finance and the next high-growth markets."

A note about currency conversion: This report uses primary data sources that originally present data in euros. To convert to US dollars, we took the US Treasury's listed conversion rates for each quarter in 2014, and averaged the figures to create a constant rate for all of 2014. We used this single conversion rate to convert across our time series in order to remove currency effects from the curve. The converted figures are meant to provide a look primarily at the market's growth and potential.

Defining the peer-to-peer lending market and how it works

Alternative lending is an umbrella term encompassing all types of lending facilitated by a non-bank entity. The most popular form of alternative lending, and the primary subject of this report, is peer-to-peer (P2P) lending, which organizes and facilitates loan provisioning outside of an institutional framework, by bringing together a partner bank, a borrower, and an investor through an online, often automated platform. 

The platform relies on metrics like credit scores, debt-to-income ratios, social media activity, employment history, and [...]