PEER-TO-PEER LENDING BUSINESS MODELS AS AN ALTERNATIVE TO TRADITIONAL BANKING

Abstract

The publication focuses on P2P lending with two main objectives. First to provide a literature review on P2P lending, explaining what it is and comparing it to traditional forms of bank lending. The second main objective is to evaluate the business model of P2P lending in terms of its advantages and disadvantages and to analyze the opportunities and risks for lenders and borrowers. P2P platforms offer competitive advantages compared to traditional bank lending for both lenders and borrowers. These advantages include: low interest rates for borrowers; the opportunity to apply for loans to some customers who maybe turned down for loans by banks; the use of innovative technologies provides much greater transparency, flexibility and fast and convenient customer service. Despite the advantages of online P2P lending, the high degree of information asymmetry in the market is considered to be a significant problem to market efficiency. The amounts of lending on P2P platforms are still very small compared to bank lending, even in countries such as the USA and the United Kingdom, where P2P lending is fastest developing. The analysis of P2P lending business models shows that instead of appearing as a threat to traditional banking, P2P lending is a complementary model to banking business models. For this reason, the best alternative for banks is to work closely with P2P platforms (this has already happened in the USA).