Why P2P Lending models are changing

Peer to Peer Lending and many other online direct lending software models are changing. We have studied different models in the online loans market for over a decade and there have been significant shifts away from lenders’ self-selecting their loans; visible loan auctions; and highly parameterised lender auto-lending tools.

Why the change? Because these older models slow down the process of matching lenders’ funds. With all the control of the allocation of lenders’ funds left in the hands of the lenders, the matching process can be very slow, and can sometimes get logjammed. The quest should be to minimise any features that create a barrier or a blockage to the processes, particularly ones that are not under the direct control of the site manager.

Speed of executing key processes affects the overall performance of online lending so consider whether you have barriers to:

• Borrower and lender on-boarding;
• Borrower credit risk categorisation and credit pricing;
• Loan origination;
• Acquisition of lenders’ funds - payments;
• Matching lenders’ funds to loans;
• Borrower loan acceptance;
• Borrower loan disbursement – payments;
• Repayment processing - payments;
• Secondary market loan sales.

Most of the above processes have a direct effect on the platform’s liquidity.

And liquidity is the answer.  In any economy, be it a country, a market, a corporation, a small business or even a household, there are two key parameters, the amount of money involved (money supply) and its turnover, the speed at which it moves around (velocity of circulation). And so it is also for a P2P Lending/Marketplace Lending business.

Many of the things that have changed in the fourteen years since P2P Lending was invented, have ultimately been to improve platform liquidity. This sometimes goes under the guise of “frictionless processes” or “user experience”, good concepts, but commercially the quest for the platform operator is for improved liquidity.

Matching lenders funds
To achieve maximum liquidity, the structure of lender investment products is crucial so they can match lender funds efficiently to the borrower loans on offer.  In so many models, this fails, creating silos of unallocated lenders funds, frustrating lenders, borrowers and site managers alike.

Delivering a win/win/win
Product innovation has come a long way now and these silos can be avoided.  Technology to achieve maximum liquidity, supporting all the processes above, is delivering benefits for all: 

• Lenders funds will yield more as their money works harder
• Creditworthy borrowers will secure loans quicker
• Site operators reach profitability much, much earlier

Whatever flavour of online lending you’re offering… 
Liquidity is the answer and your online loan software can impede or facilitate it.