Question

What is the Future of Peer-to-Peer Lending and Its Impact on Bank Loan Market? ( based on Lending Club case)

Answer 1

Peer to peer lending, usually known as P2P Lending, is the concept wherein a borrower obtains funds directly from another individual. It is also known as marketplace lending.

Traditional lending was all about the intermediaries who used to have a large amount of spread as compared with the marketplace lending. the amount of risk of non-payment is high in traditional lending as a compensatory nature of large spread.

The P2P lending comprises of two main features over and above the traditional one. One is the credit scoring and the other is low service charge.

Credit scoring allows the lender to keep a check on the borrower's credit worthiness and understanding the risk component so related to them. The Lending Club was based on this theme of eliminating banking channels from the lending processes thereby reducing the cost of lending service so offered.

By eliminating the banking channels, Lending club offered higher returns to both of the lender and the borrower due to reduced transaction cost. Bank loan market is supposed to be dominated by P2P market soon in US.