The Evolution of Peer-To-Peer Lending

The Evolution of Peer-To-Peer Lending

Peer-to-peer lending (P2P lending) is an appealing alternative to bank loans: it provides quick returns to lenders while enabling borrowers to access hard currency on demand.

Peer-to-peer lending further augments this ease by making the application process simple and decisions quick enough to help small businesses fund unexpected expenses (whole-loan and invoice financing), purchase real estate, or carve out a special niche in the market (crowdfunded real estate investing).

History of P2P Lending

After the 2008 financial crisis, peer-to-peer (P2P) lending swelled, as borrowers hungry for access to capital found an avenue for credit that was now harder to secure from banks (and high street lenders), while investors flocked to seek communication with credit, seeking diversification in their investment portfolios, at a time of scanty interest from central banks where, in Europe, rates were negative, meaning it was actually costly to save.

These new peer-to-peer lending marketplaces sought to match creditworthy people who needed money with investors who were willing to lend it, while stripping away much of the paperwork and credit-check hassle from the process, and offering both sides better interest rates than banks.

This kind of financial intermediation, made possible by new communication technology (the internet and mobile phones) and sooner enabling the peer nature of these networks, has since turned into a global network of people connected to one another, in their search for loans that are enhancing returns for investors while giving access to credit otherwise unavailable to borrowers. A content analysis on selected recent publications on the subject reveals these trends.


P2P lending provides access to credit for those who are not bankable, while offering new investment opportunities to financiers, particularly for SME growth (Malakauskas and Lakstutiene 2020).

P2P companies act as a financial intermediary by linking those wishing to lend with those looking to borrow P2P companies act as a financial intermediary by linking those wishing to lend with those looking to borrow. Middlemen have been eliminated, reducing the cost of financing for the borrower and boosting the rate of return for the lender.

Factors such as penetration of the internet, mobile phone and digital payments, and declining public confidence in traditional institutions, like banks, are all driving this phenomenon, which in turn is expected to remain stable.


The main benefits of p2p are that it can offer cheaper alternatives to commercial loans. First, it is cheaper for the consumer because he or she doesn’t have to pay commissions and interest to a middleman. Second, the lender receives money quickly and effectively without having to pay high fees to the bank. The speed and effectiveness of the procedure make peer-to-peer a great alternative to banks. Moreover, peer-to-peer provides innovative financial products that you won’t find in banks: for example, real estate crowdfunding loans, loans for small businesses, invoice financing services, and loans for agricultural development.

According to the result of bibliometric mapping, Zhang W., Li Y and Chen D are pioneer authors contributing to P2P lending, whose research hotspots and cooperation connections are mutually close, often collaborating and researching on the same topics such as sensitivity analysis, soft information semantics credit risk probability of defaults etc., with a pioneer spirit, after a comparison with title keywords. Moreover, in recent years, they have made remarkable contributions to examining measuring mechanism in these fields. Extracted from content analysis results, sensitive keywords on the topic of peer-to-peer lending are publicly available, including sensitivity analysis soft information semantics credit risk probability of defaults etc.


And yes P2P lending does offer the potential for much better returns than a basic-rate savings account, but it’s not without its risks. Lenders have no guarantee that borrowers will repay their loans, and while most P2P lending platforms conduct some form of vetting on their applicants, this scrutiny can often be bare minimum – all this means is that not all prospective borrowers may have their loan requests approved, and if any platform were to collapse lenders could lose all investments made with it.

As well as that, as many P2P investments do not return a reliable performance when there are recessions or property crashes, the returns during those periods will be lower than average, so diversify the loans in your portfolio and never invest such money that you are not prepared to lose. Secondly, there is a danger of a P2P company (once an admired and highly ethical start-up idea) losing its bearings and starting to lend money at lower-than-desired choices of borrowers simply because ‘nothing ever went wrong before’, and make loans at too low an interest that a simple Google search would have quickly shown the borrower’s creditworthiness was not checked and which bad loans wipe out an investor’s whole portfolio.


P2P lending has opened up a whole new world of potential borrowers and potential investors, but the industry is still hampered by many difficulties on many fronts.

This financing solution is very appropriate to Small and Medium Enterprises development, because traditional banks are not usually interested in giving credit to SME, which are considered rather de risky. This financing model is also beneficial in a strategy to fight against poverty by stimulating SME growth,which also creates several alternatives to income.

A bibliometric analysis on co-authorship revealed that lending as a peer-to-peer investment has been researched by the highest proportion of authors in a Peer-to-Peer lending study sample, with a total of 10 authors on Scopus. For example, Li Y studied the impact of investor rationality on peer-to-peer lending returns. He found that more rational investors prefer to lend loans with higher return, while female lenders are more likely to use peer-to-peer lending for the purpose of education and business operation.

Preston Hahn

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