US Alternative Lending Market Report

(Peer-to-Peer (P2P) and Online Platform based Business lending)

The future of alternative lending is looking bright in the US. Non-traditional alternative lending has grown rapidly in the last few years. Alternative lending caters to those customers who need cash but might not qualify for traditional bank loans because of poor credit profiles. P2P (Peer to Peer Lending) and OPB (Online platform based Business lending) has emerged to make things easier for people as well as businesses who face difficulty in getting loans only because of their low credit profiles.

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P2P segment emerged first in 2005 – focusing on lending and borrowing. P2P lending platforms, also known as marketplace lending platforms, offered an alternative to traditional banking and payment systems, since they cater to the underserved with services like consumer lending, student loans, real estate and small-business lending products. P2P lending platform is expected to reach USD $350 billion by 2025 as disruptive players like Lending Club, Prosper and others have made this a viable and growing opportunity. US P2P platforms issued approximately $– billion in loans in 2014. Lending Club originated more than $– billion in personal loans, enabling more than 250,000 consumers to achieve their financial goals in 2014. Since its inception, the organization has originated more than $6 billion in loans. Similarly, Prosper issued new loans worth more than $– millions in 2014.

OPB (Online Platform based Business lending) offers businesses a lump sum amount in exchange for a share of future transactions/Sales. The deal is a “purchase and sale of future income”. They mostly target companies having strong credit card sales like retail, restaurant and service industry. There is a plenty of room for growth in this market as the providers have penetrated only -­­-% of the market which is expected to reach USD $206billion in next 10 years. The lending platform, OnDeck which focuses on small business loans has processed 4.4 million loans since 2007 for a value above $1.7 billion. It originated $458.9 million of loans in 2013, representing year-over-year growth of 165%, and in the first nine months of 2014, the company originated $788.3 million of loans, representing year-over-year growth of 171%.

These online providers create a marketplace for lenders and borrowers, lenders can expect a higher rate of return on their investments compared with traditional bank deposits. Borrowers who are unable to qualify for loans from banks turn to these alternatives to obtain credit — possibly at a lower interest rate than they would have received from their bank, based on their respective credit profiles.

Similarly, merchants with poor credit or a lack of credit history typically have a hard time getting financing through traditional means, such as a loan, line of credit, or credit card. It’s tough for small businesses to get bank loans, pushing them towards high cost alternatives. Therefore, merchants looking for fast cash are shifting from traditional bank-led models to marketplace lending platforms. Unlike banks, the processes involved in these platforms are simple and streamlined. There’s no waiting involved as with traditional methods that take forever to underwrite a loan.

What are the benefits of platform based lending for Borrowers and Lenders?

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This success of the lending market is now prompting banks to enter into partnerships with leading lending players. Marketplace lending has created a paradigm shift in the financial service industry.

Marketplace lending could generate >400 BP cost advantage VS Banks

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Source: Lending Club based on data from St.Louis fed, Federal Reserve and Foundation Capital

LTP, along with GrowthPraxis, is publishing a new report which will provide answers to the following questions:

  • Why is P2P lending and Business lending through platforms disruptive in nature? How will it impact the traditional banking system?
  • How big is the addressable market for P2P and Business lending through platforms in the US?
  • Who are the players dominating the industry? Is there any room for new players?
  • When should we expect the inflection point in P2P and Business lending through platforms?
  • How will use of Cloud, Analytics and Mobility in P2P and Business lending change the industry?

Detailed Contents of the Report:

Peer-to-Peer Lending

  • Overview of Peer-to-Peer (P2P) Lending
  • P2P Lending – Disruptive Force in the Financial Services Industry
  • Market Size of P2P Lending in US
  • Market Share of P2P lending in US – Players
  • P2P Lending Forecasts in US (2014–2025)
  • Analysis of Loan Applications from the Loan Data of Lending Club

Platform based Business Lending

  • Overview of Business Lending through Platforms
  • Market Size of Business Lending through Platforms in US
  • Market Share of Business Lending through Platforms in US – Players
  • Business Lending through Platforms – Forecasts in US (2014-2025)

Use of Cloud, Analytics and Mobility in P2P and Business lending

Upcoming trends in P2P and Platform based Business Lending

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