P2P Lending

Synopsis

This report analyses and defines the P2P lending mechanism globally

• It discusses the advantages and disadvantages of P2P lending over banks and other financial institutions
• This report includes detailed case studies of existing and inactive companies and examines the potential impact of P2P lending on financial services
• It details the sector’s challenges, market operators, growth drivers and future outlook

Executive summary

The concept of P2P lending started in around 2005, but growth was initially very slow and it took time for people to understand the deliverables and advantages of social lending. The P2P lending market experienced a remarkable boom in 2007, when a range of websites came into the picture and lifted the community lending business. P2P lending is often said to be more economically efficient because it eliminates the middleman, and passes the cost savings on to its end users: borrowers and lenders. As intermediaries between borrowers and lenders (depositors), financial institutions take a spread between the interest they pay on deposits and the interest they receive on loans. A commonly held view is that a key driver of the P2P lending market is consumer disillusionment with the banks’ perceived lack of customer advocacy, and hidden or unfair charges. Investors find that banks can be very rigid with their credit criteria and that they also lack the sense of individual treatment.

Scope

This report focuses on the P2P lending industry and details the P2P lending mechanism globally

• It provides descriptions, analysis and comparisons of market structures, market potential, competitive environment, further market development and regulatory frameworks
• It critically analyses the disruptive potential of the service, in the context of both economic and banking theory, and prevailing market realities
• It further describes how P2P lending represents the relationship and transactional approaches to lending, and how it promises to use online social networking tools to make relationship lending available on a mass scale for the first time

Key highlights

• The concept of P2P lending started in 2005, but growth was initially very slow and it took time for people to understand the deliverables and advantages of social lending.
• The P2P lending market experienced a remarkable boom in 2007, when a range of websites came into the picture and lifted the community lending business.
• Prosper and Lending Club are two leading companies in P2P lending industry.
• In pursuing a transactional lending approach, P2P operators are competing head on with banks.
• P2P lending growth could also be fuelled by a demand for credit card debt consolidation.

Reasons to buy

• It provides a background of operators, including details of shareholders and funding, current membership figures, and loan volumes
• It outlines the operating model of each lender, including full details on loan terms, as well as the business model and partnership opportunities for banks
• It gives brief profiles of leading players and reasons for failure of non-active P2P companies
• It looks at the operating costs of P2P operators relative to banks, discusses the challenges and costs involved in marketing P2P lending to mainstream consumers, and then compares P2P lending rates with those currently offered by financial institutions
• It looks at the ways in which P2P lending capitalizes on online social networking tools to scale relationship lending beyond localized communities

Table of Contents

1 1 Executive Summary

2 Introduction
2.1 Overview of the Report
2.2 Understanding P2P Lending
2.3 Summary

3 Players in Operation
3.1 Zopa UK
3.2 Prosper – USA
3.3 Lending Club – USA
3.4 Kiva – USA
3.5 MicroPlace – USA
3.6 Duck9 – USA
3.7 IOU Central – Canada
3.8 Smava – Germany
3.9 MYC4 – Denmark
3.1 TrustBuddy
3.11 Kokos - Poland
3.12 iGrin – Australia
3.13 PPDai – China
3.14 Fynanz – USA
3.15 GlobeFunder – USA, India
3.16 CommunityLend – Canada
3.17 Lending Hub – Australia
3.18 Nexx – New Zealand
3.19 MoneyAuction
3.2 Popfunding
3.21 Auxmoney

4 Pre-Launch or Inactive Players
4.1 Zopa USA
4.2 Zopa Italy
4.3 Virgin Money USA
4.4 Boober Netherlands
4.5 Fairrates – Denmark
4.6 Frooble – Netherlands
4.7 Loanio – USA

5 P2P Lending as a Disruptive Innovation
5.1 Summary

6 Eliminating the Middleman and Promising Better Rates
6.1 The Marketing Challenge for P2P Lending
6.2 How Competitive are P2P Lending Rates?

7 Offering a More Satisfying Customer Experience
7.1 Disillusionment with Banks as a Driver of P2P Lending
7.2 Social Interaction and the ‘Fun Factor’ as Drivers of P2P Lending
7.3 Philanthropy and Ethical Investing as Drivers of P2P Lending

8 Serving to the Consumer Loan Market
8.1 Customized Products
8.2 Flexible Loan Amounts
8.3 Flexible Interest Rates
8.4 Floating Rates
8.5 Revolving Credit
8.6 Variable Loan Terms
8.7 Flexible Repayment Schedule
8.8 Multiple Payment Options
8.9 Secured Loans
8.1 Co-signers/Guarantors
8.11 Early Repayment Penalties
8.12 Interest-Only Loans
8.13 Customizing Credit Approval Criteria

9 Scaling Relationship Lending by Creating Community
9.1 Creation of a Borrower-Lender Community
9.2 Prosper Case Study: The Challenges of Managing an Online Community
9.3 Personalized Loan Listings
9.4 Lending Club’s LendingMatch Technology
9.5 The Potential of Online Reputation Scoring

10 The Trend Towards Transactional Lending
10.1 Growth Requirements and Current Growth Trends
10.2 Summary

11 Hybrid Models – Blending P2P and Traditional Lending
11.1 The Field Partner Approach
11.2 The Friends and Family Approach
11.3 Partnering with Financial Institutions

12 The Business Case for Banks

13 Competing with P2P Lending

14 Appendix
14.1 Methodology
14.2 Contact Us
14.3 About Timetric
14.4 Disclaimer

List of Tables

Table 1: Typical APR for Zopa UK 36-Month Loans of £1,000 and £15,000, by Credit Grade
Table 2: Typical APR for UK Top 10 Personal Loan Rates for ‘Excellent’ or ‘Good’ Credit
Table 3: Typical APR for Selected UK Leading Low Standard-Rate Credit Cards
Table 4: Return on top 10 UK Savings Products
Table 5: Prosper 60-Day Average APR Ranges for Different Credit Grades, DTIs and Loan Amounts
Table 6: Lending Club Rate Ranges by Credit Grade
Table 7: Selected US Banks’ Best Personal Loan Rates, APR
Table 8: Selected Leading US Bank Credit Cards APRs
Table 9: Selected Leading US Bank 30k HELOCs Rates
Table 10: Selected Leading US Credit Union 30k HELOCs Rates
Table 11: Prosper Estimated Average ROI for Selected Portfolio
Table 12: Prosper Estimated Average ROI, All Loans
Table 13: Select Leading US Bank Three-Year CDs
Table 14: Select Leading US Bank One-Year CDs
Table 15: Smava Average APRs by Credit Grade
Table 16: Leading 36-Month Online Personal Loan Rates from National Providers, Germany
Table 17: Selected Leading 36-Month CDs, Germany
Table 18: Boober Average Interest Rates (Before Fees and Defaults)
Table 19: Selected Leading Bank Personal Loan Rates, Netherlands
Table 20: Top 10 Term Deposits – Netherlands, % APR
Table 21: Product features for Prosper, Zopa UK and Lending Club Loans
Table 22: Estimated size of the US Credit Underserved Market

List of Figures

Figure 1: Screenshot of the Zopa UK Homepage
Figure 2: Screenshot of Zopa UK’s Listings Page
Figure 3: Screenshot of the Prosper Homepage
Figure 4: Screenshot of the Lending Club Homepage
Figure 5: Screenshot of Lending Club’s LendingMatch Process
Figure 6: Screenshot of the Kiva Homepage
Figure 7: Screenshot of the Kiva Work Process
Figure 8: Screenshot of Kiva’s Field Partner Profile
Figure 9: Screenshot of the MicroPlace Homepage
Figure 10: Screenshot of “How it Works”
Figure 11: Screenshot of the Duck9 Homepage
Figure 12: Screenshot of the IOU Central Homepage
Figure 13: Screenshot of the Smava Homepage
Figure 14: Smava’s Loan Terms
Figure 15: Screenshot of the MYC4 Homepage
Figure 16: Screenshot of the TrustBuddy Homepage
Figure 17: Screenshot of the Kokos Homepage
Figure 18: Screenshot of the iGrin Homepage
Figure 19: Screenshot of the PPDai Homepage
Figure 20: Screenshot of the Fynanz Homepage
Figure 21: Screenshot of the GlobeFunder Homepage
Figure 22: Screenshot of the CommunityLend Homepage(Consumer Lending)
Figure 23: Screenshot of the Lending Hub Homepage
Figure 24: Screenshot of the Nexx Homepage
Figure 25: Screenshot of the MoneyAuction Homepage
Figure 26: Screenshot of Popfunding Homepage
Figure 27: Screenshot of the Auxmoney Homepage
Figure 28: Screenshot of Zopa’s Old US Homepage
Figure 29: Screenshot of the Zopa Italy Homepage
Figure 30: Screenshot of the Smartika Homepage
Figure 31: Screenshot of the Virgin Money USA Homepage (2010)
Figure 32: Screenshot of Boober Netherlands Homepage
Figure 33: Screenshot of Fairrates Homepage
Figure 34: Screenshot of the Frooble Homepage
Figure 35: Screenshot of the Loanio Homepage
Figure 36: Screenshot of Slogans from the Zopa UK Homepage
Figure 37: Screenshot of Listings Links from the Zopa UK Homepage
Figure 38: Screenshot of the Zopa UK Community Page
Figure 39: Screenshot of the Zopa Facebook Page
Figure 40: Screenshot of Prosper Days Advertisement
Figure 41: Screenshot of Slogan from the Lending Club Homepage
Figure 42: Featured Borrowers and Top Lender Listings from the Lending Club Homepage
Figure 43: Featured ‘Happy Member’ from the Lending Club Homepage
Figure 44: Map of Member Distribution from the Lending Club Homepage
Figure 45: Screenshot of Prosper Loan Listing
Figure 46: Screenshot of Prosper’s Group Page
Figure 47: Lending Club Loan Originations by Monthly Lending
Figure 48: Prosper Loan Growth (Since February 2006)
Figure 49: Total Lending Between Zopa Members Since launch