P2P economy (when people buy goods and services directly from each other without intermediaries) in the modern world is gaining momentum. Previously, this tricky foreign word could be called a situation where a bunch of onions were bought not from a supermarket, but from a grandmother at a market. Now, in connection with the improvement of communication technologies via the Internet, P2P economy has received an additional impetus to development.
After all, this is nothing more than a platform where people can buy any goods from each other (from t-shirts to wardrobes), used cars, rent or buy an apartment, and order a service (freight, tutoring).
Today we will talk about P2P lending services. These sites offer people the opportunity to take a cash loan not from a bank or an MFI, but from another person. Do such services exist at all, what progress have they achieved, what problems do they face?
The emergence of P2P lending
The first online credit service for citizens of each other appeared in the UK in 2005.
The idea of mutual lending through the Internet is very simple. The online service is designed to attract investors and borrowers, to determine the degree of risk of lending to potential customers , to make cash transactions.
At the same time, the website has no such expenses for maintaining a network of branches and paying staff like a traditional bank. Therefore, the P2P platform has the ability to offer the borrower a loan at a lower interest rate. And an investor who provided money to the service, as a result, will receive a greater income than from placing free funds on a bank deposit.
Mutual lending services began to grow rapidly. The services of the same Zopa. com 7 years after the start of the project (in 2012) used more than 500 thousand Britons . The total amount of loans issued by this site has exceeded 200 million pounds .
The success of P2P projects in the field of lending
The rapid pace of new types of lending began to develop in the United States. The largest American P2P lending platform called Lending Club began its work in 2006. As of 2012, over 115 thousand loans totaling more than $ 1.5 billion were already in its service.
What caused such increased interest of investors and borrowers to new projects? The average rate on consumer loans in the United States for borrowers with a good rating ranges from 11 to 15% per annum. And if an ordinary American on a P2P site can get a loan at a rate 0.5% lower than at his bank, he will feel as if he won the Olympics.
Cooperation with P2P platforms is also beneficial for investors and investors. The rate on bank deposits in the United States is about 1% per annum. Placing money on mutual lending sites brings investors up to 10% income.
But at a particularly rapid pace, the P2P lending market began to develop in China. The first Internet platforms connecting investors and borrowers appeared in the Middle Kingdom in 2007. And by 2016, there were more than 5,000 such online sites . For comparison, let us cite the following figures: in the UK (in the homeland of P2P lending) there are about 100 sites of P2P loans, in the USA – about 300. The total amount of loans issued by individuals to their fellow citizens in China in 2015 was more than $ 52 billion .
The reason for such an interest in obtaining loans through the Internet is that Chinese banks simply cannot afford to lend to the vast population of their state. For people living in the Chinese hinterland bank lending is inaccessible. The only possible option for obtaining the necessary loan for an ordinary Chinese was an appeal to the Internet service.
Thus, by 2016, the impression was that citizens’ lending to each other would greatly press traditional banking services on the market.
Issues in mutual lending
However, the seemingly attractive projects for lending to each other by citizens also revealed pitfalls. The new field of activity was not regulated in any way by the law and the state , which created the basis for numerous abuses .
In the US, a bolt from the blue took place in 2016, when the founder Renault Laplanche was fired from the Lending Club. It turned out that he and his family members themselves took loans from their organization through a special investment fund in order to improve the statistical indicators for investors. In order to correct statistics and demonstrate the growth in the number of loans issued, many loans changed the date of issue.
After the scandal, the company’s shares collapsed by 50%, and investors lost confidence in such projects . Of course, there are still P2P lending sites in the USA. But they are considered, for the most part, as a modern method of attracting customers to the use of traditional banking services.
Not the best way things turned out for P2P-services in China. So, in November 2015, the Chinese site Rong Zuan Dai managed to attract several hundred investors’ money to the promise of paying high interest, and disappeared in a couple of weeks. Another well-known project turned out to be a banal financial pyramid. The loans that he “issued” to borrowers turned out to be fiction. In fact, the owners of the site paid interest from the funds contributed by the second and third waves to the first wave of investors. As a result, the project predictably collapsed. At the same time, 900 thousand investors suffered, cumulatively investing about 11 billion dollars in the site.
In 2018, China even held street protests of investors deceived by the P2 P-platforms . As a result of the outflow of investors from 5,000 sites, only 1,500 sites remained active. And the Chinese government was forced to regulate the market for P2P loans.
P2P lending in Russia
In Russia, mutual lending to citizens has not received such development as in the UK, the USA or China. The account of sites where ordinary people offered loans to each other , went not on thousands or hundreds, but literally on units .
Solvent and disciplined citizens of our country are accustomed to issue loans in banks at an acceptable rate of 15-19% per annum. Potential customers of the first domestic online services of P2P loans were the same people as borrowers of numerous MFIs. These are either citizens with a low level of income and a large number of existing loans (and, accordingly, with a high risk of non-repayment of the loan received). Or cunning, who initially were not going to give money easily received through the Internet.
Young Russian Internet projects did not have effective tools for determining the level of reliability of potential borrowers and returning unpaid loans. Investors of Russian P2P services quickly faced a high level of loan defaults.
The return of the funds lent through the court turned out to be a very lengthy and troublesome procedure. And a few years after the start of operation of such services, private investors were completely disappointed in them.
So, one of the first Russian projects on P2P-crediting opened with the assistance of the well-known Internet portal. The project was founded in 2010. The site has not issued loans since 2016. The reason is the increased level of defaults (non-repayment) of loans.
Service retrained in the usual ICC with loans at 1.5% per day and tough ways to work with overdue microcredit. The threshold of entry for private investors into this organization has increased from 50 thousand rubles to 1.5 million.
In general, P2P economy is developing. However, the idea of mutual lending by citizens of each other in practice faced serious problems. Among them are:
- the absence of a legislative base and control by the state, and, as a result, the presence of serious abuses;
- unavailability of mechanisms for checking borrowers on solvency;
- the complexity of the procedure for collecting arrears.
At the moment, we are not able to recommend you a P2P lending service, in which you could borrow money from a private person at a lower percentage than at a bank. These innovative startups have not yet succeeded in replacing the conservative but reliable banking system. So, if necessary, you should best apply for a loan to one of the well-known Russian banks.