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Though still a microscopic part of the estimated $11 trillion consumer lending market, peer-to-peer lending is going to matter in a big way sooner than you think, say those familiar with the sector.
February 25 -
Peer-to-peer lenders, cryptocurrency services and providers of tech-based services for cash-heavy users are all out to syphon business away from mainstream banks. The challenge for banks is figuring out if the threats are legitimate then trying to decide whether to beat them or join them.
May 16 -
Highlights from the New York Fed's small-business Credit Innovation forum.
June 22
Partnering with peer-to-peer lending companies could help banks squeeze more revenue from underused branches, a new study suggests.
Just as bank customers are beginning to prefer online banking to branch visits, P2P borrowers have developed more traditional tastes. What they most want in a peer-to-peer lending platform beyond quick loan approvals or sleek apps is access to a branch network.
The research firm Cognizant says that branch availability is the number-one priority cited by P2P borrowers when asked what they'd like most in a lending platform. The Cognizant study was conducted in February and March and analyzed survey responses from 701 people who are peer-to-peer lenders or borrowers.
Branch availability ranked as the most-desired feature for 43% of the borrowers, and as one of the top three priorities for 89% of the borrowers overall.
It's a striking result, because it expresses an aspiration rather than a preference; no peer-to-peer lender currently has branches or other physical infrastructure. This could point to a new way for enterprising banks and P2P lenders to strike up a partnership. For instance, a bank could allow peer-to-peer borrowers to make payments or access customer service at its branches.
Or banks could place stations in their branches where P2P borrowers can access their accounts and interact with the lenders, in exchange for a fee from the P2P platform. This would increase branch traffic and offer a bank a chance to market itself to the P2P customer.
Already, some banks have agreed to send their rejected loan applicants to particular online P2P lenders, in exchange for a fee or a percentage of the loan. But those arrangements do not involve branch access for any nonbank customers.
"This is an opportunity for banks to partner with some of the large peer lending companies to leverage their extensive branch networks to cross-sell services to P2P platform members," says Soumya Sen, a senior client partner at Cognizant.
Peer-to-peer lending platforms, which allow people to make loans to one another online without going through a financial institution, have grown very quickly in the past several years. The two largest P2P platforms, Lending Club and Prosper, facilitated $2.4 billion in loans last year, nearly three times the total in 2012, according to Cognizant. Despite this growth, P2P networks have neither invested in physical locations nor struck deals with banks to use their branches.
Because they're trusted and have experience in developing relationships, banks have an advantage that could be of use in attracting business from P2P borrowers one they've so far failed to exploit. The fact that peer-to-peer companies are mostly young startups and have a high death rate is a big issue for that sector, and it may be one reason 74% of the people making P2P loans say in the Cognizant survey that they would be willing to trust a lending platform operated by a bank. Six of 12 P2P companies founded after 2010 have failed or been shut down, Cognizant says.
The high failure rate of peer-to-peer companies likely is a concern for banks too and would give them pause before entering into any partnership. There are also regulatory hurdles to banks' participation in the P2P lending industry, as well as unanswered questions about pricing and risk.
Even so, banks and other financial-services companies have begun to invest in the P2P industry by buying loans; MUFG Union Bank in San Francisco announced such a partnership with Lending Club in May and there will be more in the future.
With enough demand by P2P borrowers for access to branches, it could be just a matter of time before a bank finds a way to overcome the hurdles and provide them access.
If banks don't take advantage of P2P borrowers' desire for physical infrastructure, it's likely that other companies will. And borrowers would be just fine with that, the survey suggests.
They might want to take their loans in brick-and-mortar branches, but borrowers mostly don't care whether their P2P platform is operated by a traditional bank. Just 10% of borrowers listed affiliation with a traditional bank as a number-one priority.
