There is little doubt that online marketplace lending (otherwise known as P2P lending) is one of the hottest markets in the financial sector at the moment. Removing middlemen from the equation, P2P lenders match consumer and business borrowers with private investors using their online platforms. However, despite the P2P moniker, retail investors compose a small percent of lenders, with the vast majority of the billions of dollars in capital arriving from the likes of institutional investors like hedge funds, private equity, and endowment funds. The appeal for both borrowers and investors, are more superior lending rates than those available from traditional banks.
Currently, by far the largest markets are the US, UK and China, with other regions also seeing strong growth. Among them, in a report to investors, Morgan Stanley forecasts that loans made on P2P platforms in Australia will grow to $22 billion by 2020. Of that, $10.4 billion is expected to come from consumer borrowers, with $11.4 billion to be lent to SMEs. At $10.4 billion, Morgan Stanley believes that online marketplace loans will compose of 6% of the total consumer lending market in Australia.
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According to the research by Morgan Stanley, keying the growth is existing high penetration of online and mobile banking usage in Australia. The familiarity with such banking tools is expected to reduce friction for consumers and business to sign up for online lending services.
Currently, the Australian market is composed of a mix of domestic and foreign firms operating in the country. Among US firms, OnDeck Capital and Kabbage both partnered with local Australian entrepreneurs and businesses to launch entities in the country. Among local firms, SocietyOne is one of the most notable, as it was launched in 2012 and includes investments News Corp and Westpac. For local banks, the growth of marketplace lending is being viewed as a negative trend that will ultimately reduce profits associated with commercial and retail lending.
Overall, the growth in Australia is part of a strong global trend that Morgan Stanley forecasts. The investment bank Morgan Stanley expects the global P2P market to grow to between $150 billion to $490 billion by 2020. The top end of that estimate would mark more than a tenfold jump from the $30-40 billion in marketplace lending estimated to have taken place across the world in 2014 by Finance Magnates.