Banks have historically handled most consumer and small business lending because they have the resources to assess a borrower's creditworthiness, and the regulatory approval to fund loans. However, this model has some key inefficiencies – interest rates are not individualized, the costs of underwriting loans are high, loan decisions can take months, and small businesses in particular have been shut out of the process. This has left room for the growth of online lending marketplaces – dubbed peer-to-peer (P2P) lenders – that leverage the internet to give both borrowers and investors a better deal. P2P lenders solve the banking model's inefficiencies by developing online marketplaces that use complex algorithms to match borrowers with investors according to each party's specifications. In new research from BI Intelligence, we look at the mechanics of P2P lending platforms and how they are using online marketplaces to lower rates, increase returns, and expan ...
