The Future of Tech and Its Influence on Peer to Peer Lending

Mar 07, 2016
Author: Ean Barnard

By leveraging the internet and a worldwide network of people willing to make loans to individuals and businesses, the stage is set for any individual or business seeking funds in any way, manner or form. People aren't using string phone methods anymore and the online financial platforms are far beyond the ways of the past. From microfinance institutions, crowd-funding, and even non-profit organizations with missions to connect people through lending to alleviate poverty, the online tech world has revolutionized the way we humans go about financing everyday things and businesses. We’re in 2016 - what a great year to build businesses, and yes, we know that there are many issues and things that need resolving in sunny South Africa - But with opportunities everywhere thanks to the online tech world, it’s never been a better time to start!

How Online Lending Platforms are changing the rules:

Online technology has drastically changed how we shop, socialize, make bookings, and even how we call a taxi. Now we have another web-based disrupter overturning yet one more South African institution: how we secure loans. Over the past few years, online marketplace lending, also called alternative lending, has made vivid changes in the land of financing. In South Africa, peer to peer lending companies like Rainfin and Lendico are in pole position of utilizing the power of the online marketplace. This doesn’t mean that online lending platforms are going to send traditional banks the way of the typewriter. Your local bank still has an important function to perform for the foreseeable future. But thanks to rigid business models within the traditional lending industry, we’re left with major gaps when it comes to funding activity in the marketplace. In these voids, creative individuals are finding not only amazing business opportunities but also an entire consumer class that until now has been way too underserved.

“Technology is what has made online lending possible. Online lenders benefit from having a much lower cost basis than banks, as a result, they can price their loans differently and can often make their lending decisions on the same day they receive an application.”

Enter Peer to Peer Lending.

True - Every cloud has a silver lining - and one of the silver linings of the financial crisis has been the growth in alternative ways for people to raise money. Banks have left many profitable niches open to smaller competitors that focus on distributing loans directly to investors. The crowd-funders, the individuals who sell equity in their future earnings, the private equity firms lending to small and medium businesses shut out by the big banks, and of course, peer-to-peer lending platforms, form part of this new group.

Peer to peer lending may be the biggest game-changing evolution in the financial services since the invention of the ATM. With lenders offering what is often referred to as an online lending platform that matches borrowers with lenders who get access to a new asset class - small business and consumer credit.

The Future of Peer to Peer Lending?

Over the next generation, business and individual borrowers will consume financial services differently than they do today, as long as regulators don’t hinder innovation. Imagine a world where any online store can receive a loan of R10 000 in their bank account within 5 minutes from 30 random people or investors on the internet. It's a form of crowdsourcing mostly used in the startup space and not for loans. No transfer fees and an instantaneous fund transfer. A world where if the shop does not pay back the loan, their warehouse locks stop opening and their devices stop working. Although daunting, this may be a possibility within a few years looking at the rate of change in online tech. As of date, the South African loan marketplace is already forever changed. Investors not only invest in stock markets but provide funds to borrowers and earn yields sometimes even higher than with traditional methods. Who knows what’s next? Well, the Internet of Things for one and more regulation as the industry expands rapidly. And as traditional banking institutions recognize the forces in the market, banks are left with two options: compete or collaborate. So we’ll be seeing many innovative solutions approaching us on the horizon in the years to come.

The power of online lending platforms is evident; how do we know that? Well, you’re using one now – you guessed it – your trusted loan comparison provider, Fincheck!

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