Opinion

The mobile phone is my banker

Jinoy Jose P | Updated on March 13, 2018 Published on April 27, 2015

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How peer-to-peer lending is challenging traditional banking

As new technologies emerge, services and businesses transform. At times, they update. Often, they get obsolete — as telcos are learning the hard way, with VoIP services edging out voice calls and messaging services. Next in line is the banking industry. It may just be a matter of time before the smartphone replaces the bank. Banks seem to believe that joining the app bandwagon and offering some banking services via mobiles will help them cope with the changes.

They’re wrong. With peer-to-peer lending gaining momentum, the banks will soon find their raison d'être under threat. P2P lending is a way of borrowing and lending money between unrelated individuals via online platforms where a traditional financial intermediary plays no role. A few months ago, the Centre for Alternative Finance at Cambridge Judge Business School and consultancy firm E&Y brought out a study, Moving Mainstream, on the alternative finance market. They found that P2P consumer lending grew 272 per cent between 2012 and 2014 the world over. In the UK, the sector saw a volume of €752 million in 2014. In the US, the two P2P lending platforms, LendingClub and Prosper have so far handled over $6 billion in loans.

With the arrival of apps to verify the financial profile of borrowers and lenders, P2P lending is expanding. Feeling the heat, banking biggies are trying to infiltrate these firms. For instance, the venture capital subsidiary of US banking giant WellsFargo is the largest investor in LendingClub. Globally, the number of apps that facilitate P2P lending is growing. The trend has caught up with India as well — Rangde.org, Milaap.org and Faircent.com are emerging P2P lending platforms. The RBI is yet to formulate concrete guidelines. Whenever that comes, the world of alternative finance can become a game changer in India.

Assistant Editor



Published on April 27, 2015
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