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The report examines how these P2P platforms developed a competitive edge by thoroughly understanding its development and evolution.
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P2P lending platforms have recorded a 400-425 basis point advantage over traditional channels.
Peer-To-Peer lending is the practice of lending money to businesses or individuals with the help of online platforms that matches the borrowers directly with the lenders. Because of its unorthodox means of operations, P2P lending is often considered beyond the boundaries of typical financial institutions and is described as an alternative financial service. Unlike the traditional retail banks, P2P lending platforms do not necessarily try to common bond between the lenders and the borrowers. Some of the unique features of these P2P platforms include ability of lenders to choose which borrowers to invest in, crowdsourcing facilities for unfamiliar borrowers and lenders along with low costs of operations.
Over the years, P2P platforms have gained widespread acceptance. Their popularity is now considered a threat of disruption for the traditional retail banks. Unlike other online financial services, P2P lending platforms target the same creditworthy lucrative borrowers as the retail banks, making it increasingly difficult for the banks to remain profitable. Some of the key factors that have provided P2P lending platforms with a competitive advantage include the use of alternative credit risk models, cheaper cost of credit and subsequent high accuracy of default risk management.
P2P lending platforms are also benefited from high customer loyalty and retention rate. Almost 75% of all its customers have reported intentions of repeat purchase because of higher returns at lower costs and better risk management. The lowers risks can be attributed to fractional lending which allows the platforms to reduce the risk of exposure. Though the P2P platforms are trending, the continuous domination of institutional investors might pose a risk to their sustainability over the years. Overall, the market for P2P lending platforms is projected to grow over the years.