Technology has played a huge role in shaping consumer behavior over the past several years. In 2016, there is a phenomenal awakening in the field of banking in Thailand. Fintech has made inroads to compete with financial institutions in the areas of the payment system, investment, and insurance. Today, PeerPower would like to introduce Peer-to-Peer Lending, a loan service platform business that is prevalent in many parts of the world and will be available in Thailand soon.
What is Peer-to-Peer Lending?
Peer-to-Peer Lending (P2P Lending) is an online marketplace that connects credit-worthy borrowers directly with the investors. Borrowers get more competitive interest rates when compared to the existing traditional channels. Investors, on the other hand, receive attractive returns from lending through the platform. The distinctive point of P2P Lending is the “many-to-one” relationship between investors and borrowers. Typically, many investors pool their investments to fund a particular loan. As an investor, one can diversify his/her investments by funding many loans (each in small amounts) to reduce overall risk.
How does P2P Lending work?
In order to enter the platform, borrowers must undergo a credit assessment. Borrowers will receive a suitable credit score and interest rate based on their credit worthiness. The information will then be displayed on the investor marketplace for funding after final loan approvals.
Investors will examine borrowers’ information, for example, employment status, credit history, debt to income ratio, loan purpose and terms. Investors will then use this information to make their investment decisions based on their risk appetite.
When the loans are 100% funded, the money will be disbursed to the borrowers. The borrowers will then have to make monthly repayments according to the loan repayment schedule. Making regular repayments on time enables borrowers to maintain a good credit history.
P2P Lending Around the World
P2P Lending originated more than a decade ago, with the first platform called Zopa in 2005. However, the concept has gained popularity around the world in the last 3-4 years. Two well-known players, Lending Club and Prosper from the U.S., have 1.6 million active users and approved loans of more than US$ 2 billion. China, the world’s largest P2P Lending market, currently has over 2,600 platforms nationwide, with the total market size estimated at US$ 67 billion.
P2P Lending business models may be different across different countries. However, the common key success factors of every platform are transparency and the ability to gain trust from the users.
P2P Lending is a very new concept for Thai people. The Bank of Thailand and the Ministry of Finance are currently in the process of issuing relevant law and regulations. PeerPower will be one of the first companies to apply for a P2P Lending license.
Source: Citi Research “Digital Disruption” (2016), Mekong Biz Research “Emerging Regulatory Approaches to Fintech: Spotlight on Peer-to-Peer Lending” (2016)