p2p lending history: How it became a billion euro business

by Samuel
5 min read

When did p2p lending start?

The history of p2p lending starts in 2005. Zopa is considered to be one of the first fintech companies that have successfully launched a p2p lending platform. Very soon the US platforms LendingClub and Prosper established their loan marketplaces. All three companies are still operating today.

In the decade after the financial crisis 2008, the life of the traditional investor hasn’t been easy. Struck by stock market and macroeconomic turbulence, not even the refuge into savings accounts and state bonds have been an rewarding financial endeavor. It is no secret that interest rates have hit an all time low for United States treasury bonds, while the European Central Bank has lowered rates to zero interest.

As a consequence, investors and borrowers are looking for alternatives; investors are seeking for higher returns, while borrowers are looking for alternative sources of financing beyond the traditional institutions.

Meeting the increasing demand for alternative finance, a new type of borrowing industry has been born: the peer-to-peer investments (abbreviated as “p2p”). Crowdlending platforms found a way to bridge the gap between offer and demand.

In the decade from 2010 many more platforms have been created also in continental Europe, especially in the Baltics. Today, mintos alone is as big as half of the entire market in Europe.

How big is the p2p lending market?

Since the first peer-to-peer lending platforms opened their gates, the crowd lending economy has grown into maturity. With a market size of around 70 billion US dollars in 2019, optimistic forecast predicts the growth of p2p lending until 2027 to 550 billion dollars. The annual growth rate of around 30% is a strong hint of the high investment potential. All along the way, investors have enjoyed great return rates up to 15%. Not even the stock market could catch up with this performance.

The main features of that marketplace are:

  • In 2019, the market size was around 70 billion US dollars
  • Business is primarily carried out online
  • Special companies (we call them p2p platforms) act as marketplaces. They broker the loans between peer investors and lenders. It is no exaggeration to say that these platforms are the key enabler of the p2p economy.
  • Some p2p platforms collaborate with “grassroots organizations” called loan originators. This rather technical term stands for nothing else than agents that convey loans to borrowers – and then offer them on the p2p platforms to the lenders.
  • Traditional lending institutes, such as banks or building and loan associations, are (rather) not part of the marketplace. The traditional finance industry does not sleep, though. You will find some projects where banks have invested into p2p marketplaces or collaborate with them, for instance by providing clearing and allocation accounts.

Regardless of this impressive facts; while the industry grows, so does its complexity. Knowing about the historical background of the market, especially when contrasting it to other markets, is helpful to understand better p2p lending in its economic context.

Further Reading

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