Peer-to-Peer lending is a relatively new way to lend and borrow money, and more than that – it is also a new type of investor asset class.
As with any new industry, we can expect the players to become smarter, more sophisticated, and the peer to peer lending industry is no exception.
This raises a question: will the long term success of the Peer-to-Peer lending industry rest more on smart lenders or smart borrowers? A third option is that long term success will rest equally on both.
The involvement of the Securities and Exchange Commission in the Peer-to-Peer lending industry has turned the public spotlight on the lending aspect of the industry and has underscored its primary role as a new investor asset class rather than as a simple lending mechanism.
As a result, lenders involved in Peer-to-Peer loans are starting to see themselves more as investors, and both aggressive and conservative investors are rapidly learning to distinguish truly higher-quality loans that come with lower rates of return from truly riskier loans that come with a higher potential rate of return.
The Peer-to-Peer industry has responded by providing investors with increasingly sophisticated portfolio building & management tools.
Peter Renton of the influential “Social Lending Network” site suggests that an “evolution” is underway from the initial “peer to peer” business model, where money primarily changed hands between individual investors and individual borrowers, to a new model that must cater to the participation of large sophisticated institutional investors, such as pension funds, hedge funds, asset managers (see “Peer to Peer Lending is Evolving”).
Help for Borrowers Looking for P2P Loans
For the individual looking to consolidate his or her credit card debt, the small business owner looking to expand, or the individual in need of a home improvement loan, borrowers are often are unsure about whether they are “qualified” or not or to what extent they are “qualified.” As P2P lending entities, both individual and institutional get smarter about whom to lend to, and under what conditions, while borrowers too often remain uneducated.
This is why we at Peerform are committed to helping borrowers know and understand their risk profile. We look at a broad range of credit measures to help borrowers understand how much they can borrow and at what rate. This increases the chances of successfully funding their loan from an increasingly sophisticated set of investors who are getting smarter about whom to lend to.
Ultimately the health and future of the Peer-to-Peer industry will depend on both informed and happy borrowers and lenders. Peerform’s commitment is to help all the Peer-to-Peer players, borrowers and investors, large and small, become healthy, wealthy, and wise.