The new disruption in lending: Alternative lending

Marketplace lending, online platforms connecting both borrowers and lenders, are still at an early stage of development. Transactions occurred through these platforms represent less than 1% of total outstanding loans and are concentrated in a few market players dominating the market.

Marketplace lending platforms target the underbanked market segment, which is especially prevalent among SMEs and low to middle income individuals in developing economies. This fact helps to explain why China is the biggest lending platform in the world, and by 2018 is expected that 9% of the retail sales will be generated to this kind of platforms (currently stands at 3%).

The further establishment of this type of platforms will have a strong growth in underbanked and developing economies where lending platforms still have a low penetration rate. Mexico and Colombia appear as two of the American economieswith the biggest growth potential due to:

(i) Under-served share of the population and enterprises by the current bank system.

(ii) High financing costs.

(iii) Aggressive growth of the internet user penetration that is providing the required digital infrastructure.

(iv) A tight regulation of the banking system (especially relevant in the Chinese case).

Nonetheless the marketplaces will face some relevant challenges. Liquidity is among the biggest challenge, with the need to establish a strong investor base. Another challenge will be presented in an environment with high interest rates, where platforms will suffer to attract liquidity. Increase regulatory pressure will present a new challenge for the marketplaces.

Get the best value of your savings by making earlier payments of big companies’ invoices with www.wupplier.com