Forecasting FinTech: Peer to Peer Lending

 What is P2P?
 
     Breakthroughs in financial technologies have opened up new markets for income investors; trading stock and over-the-phone investing have influenced new means of acquiring money. Whether it’s creating a self-driven portfolio on e-trade, or simply trading currency over a smartphone, technology has ushered in a new era of financial literacy and efficiency. As businesses continue to incorporate technological advancements, these developments will lower overhead costs and increase accessibility, attracting both clients and investors. 
 
     This phenomenon has given rise to peer to peer lending (P2P lending), where online services connect lenders to borrowers with unsecured personal loans. Instead of going through a bank or financial institution, borrowers go through an online company (such as Lending Club), and borrow directly from investors (1). Lenders can charge a lower interest rate and still earn a higher return than if the borrower were to go to a bank, as this process removes the middlemen and reduces overhead.  Even though the website managing the transaction charges a fee, this process is less expensive than using traditional banks. This new method of borrowing retains the same security in a bank loan, but increases returns and allows investors to become part of a new way to earn return.
 
Investing Made Clear
    
     Media coverage on financial markets is mainly focused on short-term investments, such as stocks, where fluctuations in prices are obsessively monitored. These are riskier, and prevent coverage on long-term bonds and assets. With low interest rates, “income seekers” have struggled with accepting lower yields on matured bonds, and thus have to invest in stocks, real estate, and businesses (2). This bodes well for borrowers, and as unemployment decreases to 4.9 percent, more people will be able to take out a loan that they can pay back (3).  Even with marginally decreasing unemployment, credit and debt are still daunting issues facing the American economy. 
 
     Surging household debt follows an increase in job availability (4). More people will be able to afford a down payment on a house, and thus, will need to take a mortgage for their house. With developments in financial technology (Fintech), lenders and borrowers will be matched rapidly and efficiently, and transactions will in return affect economic growth. The individuals then apply for credit cards, and continue to run up debt. In the American economy, the higher household debt increases the consumption sectors of the market, but results in a larger current account deficit (4). Imports increase, and online transactions continue to increase. In the end, the global economy is affected, where currency valuation strengthens and technologies continue to improve.
 
     As technologies become much more adaptive to financial markets, transparency and trust in these changes becomes a great concern. In a bank transaction, there have been hidden aspects within loans that inevitably benefit the banker and not the borrower. Such was the case with the financial crash in 2008, where bundled subprime mortgages were entrusted to subprime borrowers. Loans that were once secure became toxic, as a result of a lack of transparency between the lender and borrower.  Peer to peer lending allows for more clarity and efficient accessibility to people who are in need of immediate financial assistance, while providing more opportunity for investors. Likewise, as the technology and security sectors continue to grow, this loan acquisition method will allow for mortgages, student loans, and credit cards (1). With an expected growth at a compound annual growth rate (CAGR) of 53.06 percent from 2016-2020, it is apparent that this financial technology will shape future personal and professional transactions (5). 
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(1) "Is Peer-to-peer Lending Online the Future?" YouTube. CNN Money, 25 Oct. 2013. Web. 09 Sept. 2016.
Doorn, Philip Van. "Why Income Investors Should Consider Peer-to-peer Lending." MarketWatch. 
 
(2) Marketwatch, Inc., 17 Feb. 2016. Web. 09 Sept. 2016.
 
(3) http://data.bls.gov/timeseries/LNS14000000
 
(4) Bunker, Nick. "Here's How High Levels of Household Debt Affect Economic Growth - Equitable Growth." Equitable Growth. Washington Center for Equitable Growth, 29 Sept. 2015. Web. 09 Sept. 2016.
 
(5) "Global Peer-to-peer Lending Market 2016-2020." PR Newswire. PR Newsire Association, L.L.C., 16 Aug. 2016. Web. 09 Sept. 2016.
 
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