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Monday, 15 February 2016
We have discussed how new P2P Lending platforms are proving to be more and more efficient. This is especially true when you consider how banks function. Though, this new industry is still representing only a fraction of the volume of loans that banks process, at present, P2P lenders can compete with larger banks due to favourable regulatory treatment and use of sophisticated technology.
While banks are definitely pushing forward to become more technologically advanced and with P2P Lending becoming a global phenomenon resulting in more regulations, is there a possibility that marketplace lenders are only a temporary phenomenon? We don’t think so.
Banks and P2P lenders operate in a very different way. Banks essentially earn a major part of their income from the arbitrage on interest rate. This means that banks continue to borrow at minimum interest rates and lend at maximum rates. On the other hand, market place lenders bring together borrowers and lenders, try to get better deals for both and as a result charge fee from a closed deal. This means that they are more efficient and more transparent. Instead of preying on the ignorance of their customers, they charge a fee which clearly defines how much the customers have to pay and why they are paying it.
With this amount of efficiency and transparency, P2P Lenders are more effective to form good relationships with their customers and build this on trust. It is this trust which drives both borrowers and lenders back to marketplace lenders every time credit is required. This is a great contrast to banks. Banks drive to extract value from their customers and use it to
the banks’ advantage instead of creating value for their customers.
Firms in the financial sector have access to immense data and this can either be used for the gains of the firm itself or to create meaningful insight for their customers.
Marketplace lenders are placed to win, given their use of technology and their primary motivation: creating value for their customers.
About Rohan Hazrati
Rohan is the Founder of the Peer-to-Peer lending platform Rupaiyaexchange.
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