Peer-to-Peer Lending – An Industry Insight

Peer-to-peer (P2P) lending is a part of the overall social computing activity that is driving the rise in power of consumers on the Internet. This is revealed by the sheer volume of information, opinion and services transmitted directly between ordinary consumers over the internet. For e.g., each day volunteers create close to 10,000 articles for the online encyclopedia Wikipedia.

The timing is right for sites like Zopa and Prosper, which are part of a broader wave of sites aimed at fostering online communities. These companies are challenging the status quo using an online loan marketplace with a social computing twist. These online lending communities can be considered as a combination of eBay and — a place where consumers come together to loan and borrow money from each other.

The principle behind Zopa and Prosper is very similar to local micro-finance companies that operate in Asia and Latin America. Families, neighbors or friends lend amongst themselves to the benefit of the community as the groups are closely knit and trust is not usually an issue. The growth of the Internet, the advancement in verification and credit scoring technology, and changing attitudes to corporate institutions have resulted in viability of this method of lending and borrowing for everyone. Additionally, an increase in individual debt, a low return on savings, and increasing asset prices are also changing consumers’ borrowing and lending behavior thereby creating a favorable environment for alternative investment platforms such as peer-to-peer online lending exchanges.

The success of these web based P2P lending communities can be gauged by the strong growth in their members and loan volume. Zopa has attracted 87,000 members and Prosper currently boast of approximately 100,000 members.

In addition, Zopa won “Internet Innovation of the Year” at the 2006 CNet Technology awards and was named by American magazine Business 2.0 as one of the eleven most disruptive companies in the world.

To read my whole 15 page summary on the Peer-to-Peer lending market you can download the entire document in PDF Format. Peer-to-Peer Lending – An Industry Insight