With valuations exceeding billions of dollars and high-profile deals such as the recent Initial Public Offering by Lending Club, new business models for peer-to-peer lending platform are now emerging.

Surge in P2P Lending Gives Rise to New Business Models

Peer-to-peer (P2P) lending platforms are now all the rage. A report published by multinational professional services network PwC in February puts the figure for loans made via these platforms in the United States during 2014 at around $5.5 billion. Meanwhile Californian investment fund Foundation Capital forecast in a recent study that over a trillion dollars in loans will be generated by P2P lending platforms worldwide by 2025. Moreover San Francisco-based Lending Club, which is one of the best known platforms and is valued at around $7 billion following its stock market debut last December, has already generated over $7.5 billion in loans on its platform in just four months.

However, the online P2P lending industry is still in its infancy. Speaking at Lendit USA, the annual gathering of the online peer-to-peer lending community, which this year took place in New York from 13 to 15 April, Prosper Marketplace President Ron Suber told the audience that peer-to-peer lending was in fact now ‟in the middle of an innovation cycle” and that there was still some way to go to achieve mass adoption. Nevertheless, a number of tech startups are looking to take advantage of the popularity of these lending platforms by developing new business models that seem likely to redefine the market.

Investment advice for private individuals 

As P2P lending platforms gain in popularity, they are tending to become investment products in their own right. Some companies today are taking advantage of the trend by grafting on to existing lending platforms services designed to make it easier to use them. One of the issues investors face with platforms such as the Lending Club is how to get in on the most attractive loan requests, which are often snapped up as soon as they appear online. For example, Seattle, US-based startup Lending Robot, provides a platform to which users can connect their Lending Club and Prosper accounts and specify their investment preferences; the platform will then automate investments on their behalf. US startup Croudify, also based in California and still working in beta version, is another young company looking to take advantage of this growing market. Croudify offers automated investment portfolios on P2P lending platforms. Along similar lines to the new US ‘Robo-advisors’ such as Wealthfront and Betterment, users fill in a short online questionnaire when they register, giving details of their age, risk appetite/aversions, investment profile, etc. Based on this information, the platform will then set up an investment portfolio tailored to the user’s requirements.

New services aimed at institutional players

Screen Shot 2015-04-16 at 16.29.19.png

Moreover, it is not only private individuals that are attracted to these lending platforms. For some years now, more than half of all the money lent via these channels comes from investment funds, banks, or other companies. New business models targeting this investment segment are on the rise. New York-based startup Orchard, also represented at the LendIt event, has set up a platform that enables investment funds, pension funds and wealth management professionals to optimise investment opportunities on P2P lending platforms, using specially-designed analytical software. The Orchard team reckon that lots of institutional investors and investment funds would like to get into this market but so far lack the necessary expertise to draw up an effective strategy. Over in Europe, UK-based startup Lendery, which was founded by a French entrepreneur, offers institutional investors a trading platform specifically designed for investment via online lending sites, coupled with a range of analytical tools and the option of automating their investments. In short, the growing number of startups positioning themselves in various segments of the peer-to-peer lending industry are starting to redefine the market with inventive types of business model.

By Matthieu Coat
Business Analyst