Home > Business & Strategy > P2P Lending: A Traditional Business Model

P2P Lending: A Traditional Business Model

As the global credit markets seize up, peer-to-peer lending (P2P) could take off. P2P lending has been labelled as “social finance” as it combines online auction, social networking and elite finance to match lenders and borrowers.

Researchers from Celent estimate that $US600 million worth of loans were made online in 2007. The same study predicts that the market will grow a staggering 800% to $US5.8 billion by 2010. Loans tend to involve amounts that range between $2000 and $15,000, with credit card loan origination the most common.

What is revolutionary about P2P lending is the added social dimension to allocating funds, along with credit scores and debt levels. It is almost like an IOU from a friend.

P2P lenders rely on a transaction business model, taking a proportional fee for every loan match. This model is a break from the maligned interest-rate spreads of commercial banks. P2P lending is competitive because rates are bid until agreement is reached. The sites act as an exchange, cutting out the middle-man.

Major finance players are taking notice of these trends, not wanting to miss the next internet wonder. Virgin Money in the US has incorporated P2P principles with a majority stake in family focused CircleLending.

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Categories: Business & Strategy
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