The peer-to-peer (P2P) lending that’s enabled start-ups to take a chunk out of banking market share remains one of the fastest-growing segments in FinTech.
While the U.S. logged a relatively modest $5.5 billion in P2P loans just two years ago, some analysts believe the P2P market will reach $150 billion or higher by 2025, partly because consumers tend to perceive such lenders as offering lower interest rates, easier applications, real-time updates and faster turnarounds. The tech-savvy millennial generation is particularly drawn to FinTech solutions, especially mobile wallets, mobile money and alternative payment solutions. One study says millennials are 10 times more likely to use P2P lenders than their fellow Americans 50 and older.
Meanwhile, business researcher Deloitte recently released a report concluding marketplace leaders in the U.K. are “unlikely to pose a threat to banks in the mass market” anytime soon. The study claims P2P firms aren’t innovative enough and will struggle to grow enough to compete effectively against more traditional lending institutions in the future.
A brief summary of the U.S. market:
What companies have recently invested?
- Banks BBVA, Credit Suisse and JP Morgan directly invested in Prosper’s latest funding round.
- Silicon Valley Bank and Norwest Venture Partners (whose sole LP is Wells Fargo) invested in Lending Club.
What are some predicted IPOs?
On TechCrunch.com earlier this year, Sonny Singh predicted pending IPOs from Kabbage, Prosper, Avant and SoFi. “Lending sites in 2016 will continue to put up impressive numbers,” he writes. “The rise in interest rates should not slow things down, as long as the economy doesn’t crash and cause unemployment to increase dramatically. The lack of defaults due to rising interest rates also should cause the stock price of Lending Club to go up.”
Earlier this year analyst Peter Renton predicted five IPOs on U.S. platforms this year, but didn’t name names.
What are some predicted acquisitions?
Singh looks for acquisitions from large banks and from card associations like MasterCard, Visa and Discover.
“Don’t be surprised to see internet consumer companies like Google, Facebook or Amazon enter this space and either partner with or acquire existing lending sites,” he adds. “Those internet giants would have great synergies with lending sites, and be able to offer these loans to a lot more consumers.”
Some see the big players he mentioned taking an even bigger role this year. FinTech writer David Gyori points to the acronym GAFA (Google Apple Facebook Amazon) as a frequent subject of industry conversation.
“The ‘GAFA’ Bank is a concept long circulating among FinTech experts,” he notes. “The concept predicts the rise of a new, global, major bank started up by one of these iconic tech-players. We think 2016 might be the year we start to hear about some serious planning related to this project.”
For his part, Renton predicts an undisclosed Chinese firm will buy a U.S. marketplace lending platform before the year is out.
Singh advises continued growth in the P2P market will depend heavily on whether interest rates rise and lead to defaults; whether regulation will increase; whether banks will use their own sites and partnerships to step up competition and whether the market expands enough to accommodate more players.