Revolutionising finance – the history of the peer to peer lending industry

Published: 24.05.2018.

The peer to peer lending industry has been changing the way we see finance and challenging the roles of traditional banks in society since 2005. As a result, banks no longer have a monopoly over the lending industry and investments are no longer confined to stocks and bonds. The peer-to-peer lending industry has brought endless opportunities and ample variety for borrowers and investors alike.

Peer to peer lending is when people (lenders/investors) give out loans to other people (borrowers). Since its inception, the industry has been growing at a rapid pace. According to research and advisory company, Transparency Market Research, “the opportunity in the global peer-to-peer market will be worth $898 billion by the year 2024, from $26 billion in 2015. The market is anticipated to rise at a whopping CAGR [Compound Annual Growth Rate] of 48.2% between 2016 and 2024.” In a report in 2015, Morgan Stanley also predicted that marketplace lending would grow to USD 150 billion to USD 490 billion globally by 2020.

How did the industry begin?

 The peer-to-peer lending industry started with Zopa, a personal finance peer-to-peer lending company. Based in the United Kingdom, the company was founded in 2005 and it was the first P2P lending company in the world, as well as one of the earliest fintech firms. Since its establishment, Zopa has issued more than GBP 3.22 billion worth of loans to borrowers in the United Kingdom.

Following on Zopa’s heels, Lending Club and Prosper were established in the United States in 2006. Since then, the industry has been growing rapidly and currently, the largest markets are China, the United States and Europe. Across the world, there are thousands of platforms that have distributed billions worth of loans.

In 2010, the first significant peer-to-peer lender focused on business loans launched in August – Funding Circle. The United Kingdom-based company is the leading platform for small business lending and distributes loans directly to small and medium-sized businesses. Since its inception, it has helped 40 000 small businesses across the world

Peer-to-peer lending in Latvia

In Latvia, the peer to peer lending industry started late, but it has grown quickly. The first two platforms established were Mintos and TWINO in 2015. According to data from AltFi, Mintos is the leading player in the peer-to-peer lending market in Continental Europe with 46% of market share. Other companies in the industry include Dofinance, Swaper, Viainvest, Viventor, and others.

According to The 3rd European Alternative Finance Industry Benchmarking Report, the Baltic countries have shown one of the fastest growth rates, expanding by 287% from 2015 to 2016. In 2016, the alternative finance market volume has grown by close to EUR 101 million, with a total volume of EUR 136 million. As a result, the Baltic region is the 5th largest in continental Europe for alternative finance.

Currently, the Ministry of Finance is working on creating effective regulation for the peer-to-peer lending industry in the country. In 2017, it initiated the development of new regulation of the P2P lending industry and some of the main players, such as Mintos and TWINO have been active in developing supportive and fair regulation for the country. The regulation is expected to come into effect in 2018.

The peer-to-peer lending industry has already shown positive results and has had a large impact on the finance industry and it is not looking to slow down anytime soon. Technological advancements, continuous innovation and supportive regulations will see the industry soaring to unexpected levels and continue to transform the way we view finance and lending.

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