Why Marketplace Lending is No longer “Alternative”

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After the Great Recession, banks stopped lending. Scared of the risk involved with lending to people and small businesses, banks retreated and the concept of “alternative finance” moved to the forefront.

online lendingThat was 10 years ago. Marketplace lending has now carved its place as a juggernaut in the Financial Services sector. What was once seen as revolutionary is now ordinary and evolved into a thriving lending network for hedge funds, big banks, investors and pension funds. In addition to their roots of raising money from crowdfunding, P2P lenders are now seeing cash flow from institutional investors.

According to Emma Dunkley, writer for FT.com;

“The UK’s P2P sites are gathering cash from institutions as a way for them to earn attractive interest in today’s low rate environment. About 25 percent of the amount lent through P2P is made by institutions, including banks and hedge funds, according to a new report by the University of Cambridge Nesta, an innovation charity”.

On this side of the pond, a similar pattern is occurring with U.S. banks, as seen in the recent deal between JP Morgan and OnDeck. Moreover, following a survey of banks and other institutional investors, Barron’s noted that 29 percent are already investing in marketplace lending, while 85 percent reported an interest in investing in alternative lending.

Ultimately, they recognize that P2P lending platforms’ agility and data collection points are creating an exciting opportunity.

Big Banks Focus on Digital Appeal

Often, banks and institutional investors are knocked for being antiquated and overly methodical. As large and complicated organizations, there is surely some truth to that as they tend to be more systematic and disciplined. However, that doesn’t mean they don’t understand opportunities in the marketplace.

Through the full integration of digital technology to streamline the lending process and improve customer service, marketplace lenders are setting a new standard for borrowers. The era of long drawn out processes is coming to an end and staying competitive means evolving.

As marketplace lending sheds its “alternative lending” tag, there are still crucial risks they’ll need to consider. This will mean meeting the increasing demands for transparency by regulators and legislators, while also protecting themselves, customers and investors — including large institutional investors that used to be viewed as the enemy.