Peer To Peer Lending Increases with Mobile Apps

Through peer to peer (P2P) platforms, lenders are given an opportunity to earn from 5 and in some cases. as high as 30% on loans. This has attracted the likes of insurance companies, hedge funds, foundations and family & SME businesses looking for returns that they can’t get anywhere else.

Borrowers using peer to peer lending generally get better rates and faster decisions than the more conventional banks can offer, while lenders get higher returns than they can find on the likes of bonds. People (or consumers) have been known to use P2P loans to consolidate and pay off credit cards or student loans.

Banks have a tough time with unsecured personal loans and small business lending. We may recall that during the financial crisis, most of the banks cut back on their number of loan officers and now they simply don’t have the personnel to lend small amounts which is up to £25,000 for individuals and more for businesses.

The peer-to-peer lenders do not have a branch network or fixed formalities to upkeep so they can offer better terms, keep their overheads lower and they are moderately regulated because they don’t hold large deposits.

Consumers wanting to try out peer to peer lending may want to first dip their toe in the water and start with low amounts of pledges around £50 (amounts they could afford to lose especially for any unsecured lending activity) which will moderate their risk and avoid the longer term lending models and keep within typically the 12 month duration.

In P2P, a funder has the freedom to choose whether to provide the entire loan or take on increments as small as £50 (or even less in some cases), so they can spread risk across several loans through small notes.

Peer-to-peer lending isn’t so much about peers anymore. Recent digital innovations are made specifically for peer-to-peer lending. One of them is Ledge, a mobile app which looks something like a combination of Kickstarter, social media and peer-to-peer lending.

Ledge (US based entity) helps individuals borrow from friends and family through an account on Venmo, the free personal payment app which is now a part of PayPal. Borrowers create a campaign to raise up to $5,000 and invite friends to pledge toward the goal. Once the goal is reached, the pledges are transferred to the borrower’s Venmo account and Ledge handles automatic repayments. The site claims that “with Ledge, there are no complicated payment calculations, and most importantly no awkward conversations about repayment.”

Another technological advancement is made in the form of Square, Paypal and Snapcash. Square developed a small card reader that plugs into the headset jack of a smartphone or tablet. It uses the transactions it processes to offer loans to businesses based on their cash flow/card flow. A company borrowing $10,000 would repay $11,000 and the payments would come out of its transactions. Even in busy times, it repays faster and when business slows, it repays more slowly. PayPal also offers a card reader and a similar lending service. While Snapcash has a person-to-person payment service that uses Square, and transfers your cash rather than simply making it disappear.

Moreover, Facebook Messenger will eventually be used as an e-commerce tool. David Marcus, formerly of PayPal, has expanded Messenger into a mobile commerce tool that allows merchants to communicate with customers, enables customers to buy from businesses and lets users make payments to friends from within their conversation.

In all cases, whether they are either US or UK based applications, it needs to be thoroughly researched and measure-tested to your own personal risk level. One thing for sure, if we are seeing more and more mobile apps that offer consumer peer to peer lending with easy access payment merchants then this is not a ‘five-minute’ wonder of an industry (as some may want to claim) that will fade and this is supported by the big players are now also interested in being part of a fast growing niche.