The P2P Lending: Comparative Overlook for Uk, USA, India & more

calendarJanuary 9, 2024
The P2P Lending: Comparative Overlook for Uk, USA, India & more

Over the past few years, alternative methods of financing, such as P2P Lending, have gained significant traction across the globe. P2P Lending platforms offer amazing transactional opportunities for both the lender as well as the borrower, wherein the lender gets a higher rate of interest compared to interest rates offered by traditional banking/financial services, while the borrower gets fairly quick loans at lower interest rates despite the fees charged by the P2P lending services.

Needless to say, P2P lending has truly caught on across the globe, and it’s done so at a scale that would truly leave one amazed. This blog explores the current state of P2P lending ecosystems across the world, from the US, Europe, Middle East, and Africa regions to India.

United Kingdom: Pioneering P2P Lending

The UK was the first nation to usher in the P2P lending industry to the world. Zopa, which was founded in 2005, was the UK’s first P2P Lending Company. The Sector then witnessed the emergence of various platforms such as Funding Circle, which has originated over £6.3 billion in loans, and the P2P Lending market has witnessed smooth growth over the years, with the market having grown an average of 21.2% per year on average between 2017 and 2022. The market size of the UK’s P2P Lending Industry was last measured in terms of revenue at £370.7m in 2022.

Tax Benefits and Governmental Regulations in Place: In the UK, P2P lending has qualified for tax advantages through the Innovative Finance Individual Savings Account (IFISA) since 2016, significantly boosting investments in ISAs. The regulatory framework under the Financial Conduct Authority (FCA) aims to ensure accountability and growth in the sector.

P2P Lending Industry in the United States

Following the footsteps of the UK, the US witnessed the rise of Prosper Marketplace and LendingClub in 2006, both of which were headquartered in San Francisco, California.

The financial crisis of 2007–2008 drove borrowers to P2P lending platforms, with LendingClub emerging as the largest P2P lender by 2013. This shift in investor confidence and the increasing involvement of traditional financial institutions marked the maturation of the P2P lending industry in the United States.

North America dominated the P2P Lending market in 2022, with a market size of US$ 18.88 billion, and it is predicted to expand to US$ 197.28 billion by 2032 with a CAGR of 26.50% from 2023 to 2032.

Government Regulations: P2P Lending experienced fragmented regulation in the US. While The Securities and Exchange Commission (SEC) is responsible for regulating P2P Platforms as an investment option, the Consumer Financial Protection Bureau and the Federal Trade Commission regulate the borrowing side.

P2P Lending Landscape of Europe

Beyond the UK, Germany is yet another leading market for European P2P lending platforms. In 2016, Germany was Europe’s second-largest market, accounting for more than 5% of total European P2P Lending volume since the inception of the P2P Industry in Europe. Europe’s P2P Lending market also has experienced steady growth, with the Industry being valued at US$13.6 Billion in 2020, with a projected growth at a CAGR of 25.27% from 2021- ’28.

Government Regulations: Although P2P Lending poses the same set of problems and newer challenges to be solved when put in comparison to traditional financing mechanisms, regulations for the same vary based on the individual state where it functions. On a central level, however, the EU regulates P2P Lending via the Consumer Credit Directive and the Mortgage Credit Directive.

P2P Lending Industry in Southeast Asia

Unlike the regions of Europe and the US, the Southeast Asian Region has been rather under-banked when compared to its Western counterparts. This has had a consequential effect on Southeast Asia, being an excellent breeding ground for P2P Lending Opportunities.P2P Enterprises have truly stepped up to complement their peers in traditional finance, and P2P now offers much-needed lending opportunities for individuals and businesses, especially those in the MSME Sector.

China had 2,595 active P2P Lending platforms in 2015, with US$147 Billion in Annual Traded Volume.

Indonesia makes for an interesting case study, as the nation is severely underbanked, with only 1 in 3 adults having access to a bank account and most agricultural businesses having no access to bank loans.  P2P Lending platforms have made for an excellent market fit in this nation, with Indonesia’s P2P industry having disbursed an estimated US$17 billion in loans in 2022, an increase from the estimated US$10.2 billion disbursed throughout 2021.

Government Regulations: The rise of platforms that made it easier than ever to avail finances also ensured that there was a fair amount of scams running parallel. Indonesia’s Financial Services Authority, the OJK, issued new regulations in July 2022, which aimed to crack down on illegal and financially unhealthy fintech players by introducing new capital requirements, revamping the licensing regime, and introducing minimum equity requirements. Malaysia had updated their financial guidelines to work with P2P lenders, and Thailand released their P2P Lending regulations in 2019 after having released a consolation paper in 2018.

P2P Lending in Sub-Saharan Africa

The Sub-Saharan Africa region has been undergoing the most impactful changes in their financial sector over the past few years, and the fintech sector, including P2P Lending platforms and P2P apps, are to be given their due credit in the same. P2P Lending has grown to be a dominant force in the alternative lending models of Sub-Saharan Africa, as it offered lending opportunities to small and agriculture-based businesses, many of whom were often turned down by banks. Apps such as thriveagric or farmcrowdy allowed investors to finance the seeding stages of a crop, which would be paid back to them by the harvest season. Rainfin, a popular African P2P lender, reported facilitating more than ZAR 1 Billion in loans between 2012 and 2021.

Government Regulations: A 2021 Study conducted by the Judge Business School at the University of Cambridge showed that only 35% of their sampled jurisdictions had regulations in place, with 15% planning to introduce regulations. This figure was relatively low compared to the Middle East and North Africa regions, where 58% of jurisdictions had regulations, and the Asia-Pacific region, where 72% had regulations. As of 2021, only two jurisdictions in SSA had dedicated regulatory frameworks for P2P lending, while the others regulated it under existing frameworks. This indicates that P2P lending may not be receiving specific attention in terms of regulation in many SSA countries.

P2P Lending Industry in India

P2P Platforms have caught on in India despite the generally conservative nature of Indian investors. New-gen investors can be thanked for this, and the platforms offering returns of up to 12% on investments as compared to the 7% offered by traditional banks can also be attributed as reasons why the markets have been welcoming P2P lending platforms.

To ensure further safety of investors, India’s chief Banking Regulator, the RBI, has taken effective steps to ensure that KYC norms are abided by and that investors’ funds are rightfully used, and this has greatly brought in positive sentiments towards lending apps from within the market. According to a report by IndustryARC, a market research firm, the Indian P2P lending market is expected to swell to $10.5 billion by 2026, growing at 21.6% between 2021-26.