There once was a time when obtaining credit meant having to get dressed up in your best suit and making your way to the local bank to literally beg for credit. Whether you received the money depended on meeting a variety of conditions and criteria.
The last few years have seen a major disruption in how lending is carried out. A combination of the financial crash of 2008 and the advancement of technology has seen the FinTech (Financial Technology) sector expand considerably. One area that has seen significant growth is crowdlending, also known as peer-to-peer lending.
There are a growing number of platforms worldwide that provide a diverse selection of loans offered on a p2p basis. One of the more popular P2P platforms is Grupeer which has investors from 91 countries and issued loans totaling nearly 70 million euros so far this year. The Latvian-based platform enables investors to balance profitability with risk with investment opportunities in real estate, loan deals, and a Stability Fund operated by Grupeer.
P2P Lending Facing Regulation?
The boom in P2P lending has attracted the attention of the regulatory authorities. In the UK, new and inexperienced investors will have the amount they can deposit in peer-to-peer platforms capped at 10% unless financial advice has been demonstrably taken first. Once investors have experience of making two investments in a two-year period, the 10% cap (not applicable to high net worth clients anyway) falls away.
This year has seen the high-profile implosion of P2P lenders FundingSecure and Lendy, which prompted the intervention by the FCA. P2P platforms are still not covered by the Financial Services Compensation Scheme, but the gradual increase of regulation into an otherwise unregulated market can only be taken as a good thing from a consumer point of view. More protection, more accountability, and more diversification should all benefit the consumer in the long term.
How much regulation can be brought in, implemented and monitored remains to be seen. The decentralized nature of P2P lending will always be a big part of P2P lending so can’t be ignored or smothered. However, with the right, non-restrictive regulation, the P2P lending and crowdlending industries could blossom even further and faster.