Review of My P2P Lending Predictions For 2011

In January 2011 I wrote down my predictions for p2p lending trends in 2011. Now let’s see how far I was off. The black text is my original prediction, with the review added in green and yellow.

Advent of whitelabel providers (probability 100%)
Okay let’s start this with a safe bet. In 2011 there will be 1-2 companies offering a solution that can be branded and used by p2p lending services and / or p2p microfinance sites. The interesting question here is how the acceptance by potential customers will be. My guess is that it will be slow selling until the companies have set the first pilot customer live.
While there are now whitelabel providers, their business seems to have been very slow in 2011. It seems that the first areas where we will see some activity is possibly p2p equity. As for conventional p2p lending – the companies supplying solutions have become more sophisticated and at least one as adopted their price model. It is now more a revenue sharing deal rather than a big upfront payment, that most startups could struggle with.

Introduction of a p2p financed ‘credit card’ (probability very low)
I envision a p2p lending service where the borrower does not get a loan in one full amount initially but can access liquidity on demand (within a predefined credit line). From the funding side this would work somewhat like lenders investing in Ratesetter’s rolling monthly loans. On the borrower side the customer could either request an additional payout via a web-interface or more sophisticated the service could issue a branded credit card / debit card for that purpose, enabling the customer to access cash instantly on an ATM.
This concept has very interesting advantages as it allows the p2p lending service to build a durable relationship to the borrowers. And for the borrowers it offers the potential of lower rates on short term debt than the high rates credit cards typically carry.
Like the idea and want to discuss/develop it further? Self-promotion plug: You can hire me as a consultant.
Has not happened.

A bank will acquire an existing p2p lending service (probability <25%)
Carried over from last year – did not happen
2011 might see a bank (or other financial institution) buying a running p2p lending service.
Buying will be much faster, cheaper and risk-less than if the bank tries to build a new service.
Largest Italian private Bank bought at least a part.

Larger MFIs start their own p2p microfinance sites (probability <25%)
If p2p lending and p2p microfinance is about eliminating intermediaries and making the process more transparent you might start to wonder from an MFI’s viewpoint what they need sites like Kiva, MYC4 or Microplace for. The answer is obvious: marketing and trust/reputation.
But as Zidisha aims to eliminate MFIs as intermediaries, could the way for the MFI be to set up own p2p microfinance sites to establish direct connections to lenders? This may seem far-fetched initially. Do not try to replace the established system but rather build an additional one that adds new possibilities. Think about a MFI in India (or South America) that wants to win the growing local upper class as lenders. If the MFI runs a p2p microfinance site it could use the local language, there would be no or less currency exchange issue. Costs and complexity have reduced (see whitelabel provider above) to a level that might make this route attractive.
If it did happen and I overlooked it please let me know in the comments.

Cross-market lending (probability low)
Carried over from last three years – was not implemented
Aside form the social lending approaches so far all services are open only for lenders and borrowers that live in the same market. While the conclusion from the last year(s) was (and still is) that due to the steep regulatory hurdles to be taken it is more likely that a p2p lending service would rather set up subsidiary in each market, i don’t want to totally give up on this idea as there are first tiny indications that cross border lending will become possible to some degree in 2011. However in terms of volume and impact this will not become relevant in 2011, but stay a niche market experiment.
That did not happen either, but I have trustworthy information that it will come soon.

Oh my godness, I failed on 4 out of 5. I sure hope I’ll do better in the future.

(Photo credit: Per Ola Wiberg)

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