RESEARCH: Can P2P Lending Reinvent Banking?

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Marketplace lenders have proven that they’re more than a passing fad—and traditional banks are taking note.

Morgan Stanley Blue Papers, a product of our Research Division, involve collaboration from analysts, economists and strategists across the globe and address long-term, structural business changes that are reshaping the fundamentals of entire economies and industries around the globe.

Need to borrow a not-insubstantial sum of money? Some options that may spring to mind: the friends and family plan, maxing out credit cards, or the traditional bank.

Now, imagine you could whip out your smartphone, answer some simple questions on an app, offer basic bona fides, and get an answer within minutes. If the latter sounds appealing, that could explain why, over the past several years, peer-to-peer lending has swelled in popularity.

P2P lenders have leveraged low operating costs, minimal regulations, Big Data and technology streamlined for a mobile generation to mediate terms between everyday borrowers who want quick access to cash and the lender-next-door starved for yield. It’s a fast-growing financial model, with global variations, that some have predicted could upend the traditional banking industry. Right now, however, it is attracting institutional investors, as well as big banks eager to learn how to become more agile.







Global Reach and Growth

These days, “marketplace lending” is a more fitting term for this evolving business. “The fastest growing marketplace platforms are not really peer-to-peer but institutional investors partnering with tech platforms to cherry-pick borrowers, often with offline marketing,” says Smittipon Srethapramote, who covers the North American payments industry at Morgan Stanley.

In the US, marketplace loan origination has doubled every year since 2010, to $12 billion in 2014. Meanwhile, the trend is playing out globally, notably in Australia, China and the UK. All-told, such lending could command $150 billion to $490 billion globally by 2020.

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