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P2P Lending Platforms Target a More Diverse Borrower Base

shutterstock_276006947With many consumers and small businesses embracing the concept of borrowing from and loaning money to strangers over the past five years, the Peer-to-Peer Lending Platforms industry has experienced a sharp expansion. In fact, a report from PwC estimated that the industry issued $5.5 billion in loans during 2014. As a result, IBISWorld estimates industry revenue has grown at an annualized rate of 156.8% over the past five years, including 115.0% projected growth during 2015. As more companies hope to capture a share of this rapidly growing market, IBISWorld expects that the number of enterprises will rise from eight in 2010 to 163 in 2015, an annualized increase of 82.7%. However, in order to further establish the nascent industry, peer-to-peer lending platforms are striving for a more diverse borrower base, given that the industry’s appeal has so far been limited mostly to younger consumers.

Future success of the Peer-to-Peer Lending Platforms industry will increasingly rely on continued acceptance by older consumers. In the industry’s infancy, younger consumers accounted for the majority of P2P transactions, largely because the industry enabled younger low-credit or no-credit individuals to receive loans easily through a process that bypassed traditional banks and investment institutions. The industry’s rapid growth over the past five years, and its transformation from fledgling startups to a $1.2-billion business in 2015, has demonstrated its broadening acceptance among consumers as a legitimate lending platform. P2P lending companies have legitimized themselves in the eyes of more risk-averse, older consumers who may previously have perceived the provision and acceptance of loans without a banking intermediary to be financially unsound.

Lending Club, which has a 34.5% share of the P2P market, saw that in 2014, 31.0% of its borrowers were above the age of 51, compared with 12.0% in 2009. The narrowing gap between younger and older borrowers can generally be attributed to increasing e-commerce penetration among the broader US population. Illustrating this increasing comfort with online transactions, IBISWorld estimates that e-commerce represents 7.2% of total US retail sales in 2015, up from 4.4% in 2010. With the housing sector and overall economy expected to pick up steam during the next five years, this changing borrower landscape bodes well for the industry. Data from the US Census Bureau reveals that about 75.0% of consumers over age 55 are homeowners; these consumers are likely to possess the credit as well as the means to repay their P2P loans over the next five years. Consequently, IBISWorld projects the Peer-to-Peer Lending Platforms industry to grow at an average annual rate of 38.9% to $6.1 billion by 2020. While the industry’s lending services were once used primarily by younger consumers, steady increases in P2P lending activity among other age demographics will be vital for the industry to generate robust revenue growth.

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