PORTADA TFM – Peer to Peer Lending Sergi Herrero Noguera [email protected] 1. Abstract Money is an invention that we made in order to be accepted as payment for goods and services that we have get. We created it 100.000 years ago, and since then we have never stopped evolving it. At the beginning they were small pieces of gold with some kind of inscription that made them different from the rest, nowadays most of the money we use is a piece of paper with some pictures and holograms on it. Money has evolved a lot, but the way we trade/exchange it almost remained the same. This is starting to change with the arrival of Internet, which will enable to by-pass one of the oldest institutions in the world: Banks. What started as a new way to share files and music with friends over the net is just about to become a new way of exchange one of the most important assets in our lives: Money. 2 [TFM – Peer to Peer Lending] 2. Summary In this study, « P2P Lending » is used to mean the action of borrow or lend money by using services of a Peer To Peer website. Those kinds of websites enable Internet users (professionals or not) to exchange information between each other. This emerging phenomenon, visible since almost ten years, stays in the fringe compared to the credit and microcredit market. Its development is still local (mostly in the US and UK). The market is still in embryonic stages. But some analysts are predicting a significant development on a middle term basis. We notice indeed more and more P2P Lending experiences in Europe and Asia. Banks are more and more interested into those new kinds of platforms, capable of collecting savings and distributing online loans. Study's goal is to map a state of the art of P2P Lending in the US in the first semester of 2010, to find key information in order to let big European Banks understand this changes and integrate them to their strategically vision and innovation projects. 3 1. ABSTRACT ......................................................................................................................................................... 2 2. SUMMARY……………………………………………………………………………………………………..3 3. WHY BEING INTERESTED INTO P2P LENDING PLATFORMS? ......................................................... 8 3.1. P2P LENDING WEBSITES ARE CONCEIVED TO COLLECT SAVINGS AND DISTRIBUTE ONLINE CREDITS. THEY CAN ALSO BE USED AS A WAY TO DISTRIBUTE OTHER PRODUCTS AND SERVICES COMING FROM BANKS, FINANCIAL INSTITUTIONS OR INSURANCES. .......................................................................................................... 8 3.2. DEVELOPMENT OF P2P LENDING WEBSITES IS A CORE STAKE OF (UN)REGULATION AND LIBERALIZATION OF CREDIT MARKET AND BANK SERVICES. ................................................................................................................. 9 3.3. P2P LENDING COULD GROW SIGNIFICANTLY ............................................................................................... 10 3.4. P2P LENDING WEBSITES ARE R&D E-COMMERCE BANKING. ..................................................................... 11 4. WORLWIDE P2P LENDING MARKET IN JUNE 2010 ........................................................................... 12 4.1. P2P LENDING IS ON THE INTERNET FOR ALMOST 10 YEARS ! ...................................................................... 12 4.2. NONE OF P2P LENDING PLATFORMS ARE BENEFICIAL SO FAR. ALL ARE DEPENDING OF CAPITAL RISK'S FINANCING. ........................................................................................................................................................ 12 4.3. TWO MODELS OF P2P LENDING COEXIST NOW ............................................................................................ 13 4.4. PEER TO PEER PRACTICES ARE MOSTLY ABOUT MARKETING FEATURES ON P2P LENDING WEBSITES, RARELY THE LOAN ITSELF. ................................................................................................................................. 14 4.4.1. For the « North-South » models, means asymmetry prevents real P2P mechanisms to appear. ....... 14 4.4.2. Peer To Peer mechanisms are mainly useful to recruit and develop the loyalty of new clients for financial institutions and banks. ................................................................................................................... 14 4.4.3. In most of the case, « Peer To Peer » uses consist in enabling lenders to choose the payee. ........... 15 4.4.4. Financial flow on a majority of P2P Lending websites are more about relationships between financial institutions and consumers than about consumers relationships. ................................................. 17 4.4.5. « North-North » P2P Lending actors have maintained for a few years the myth of direct mediation without banks. This is a myth because these websites are precisely working with banks. In the future, this role could be more and more attributed to banks. ....................................................................................... 18 4.4.6. For « North-North » P2P Lending actors, the website is not only an e-commerce platform dedicated to products and financial services distribution. ............................................................................................ 19 4.5. P2P LENDING MARKET IS STILL NEW, IMMATURE, UNSTABLE ...................................................................... 20 4.6. P2P LENDING MARKET IS ESSENTIALLY AMERICAN AND ALMOST EXCLUSIVELY ANGLO-SAXON UNTIL NOW... ................................................................................................................................................................ 21 5. MAIN IDEAS ................................................................................................................................................... 22 5.1. DISCUSS WITH NATIONAL BANKS ABOUT RISKS RELATED TO MICROCREDIT ACTIVITIES AND P2P LENDING.23 SYNERGIES EXISTS BETWEEN MICROCREDIT DISTRIBUTION AND CLASSICAL FINANCIAL PRODUCTS 5.2. DISTRIBUTION. USE THEM. ........................................................................................................................... 23 6. SYNTHESIS ABOUT P2P LENDING MARKET IN THE UNITED STATES ........................................ 24 6.1. AMERICAN P2P LENDING MARKET IS ESSENTIALLY LIMITED TO THE UNITED STATES ................................ 24 6.2. ANALYSTS FORECAST A REVIVAL OF P2P LENDING MARKET IN 2010 AND A MIDDLE-TERM SIGNIFICATIVE DEVELOPMENT. .................................................................................................................................................. 24 4 [TFM – Peer to Peer Lending] 6.3. AMERICAN MARKET GROWS SLOWLY SINCE ITS CREATION AND HAS BEEN STRONGLY SLOW DOWN AFTER REGULATION AUTHORITIES REACTION TO THE SUBPRIMES CRISIS. ..................................................................... 24 6.3.1. P2P Lending platforms are suffering from a lack of presence. .......................................................... 24 6.3.2. P2P Lending product offer is still too limited .................................................................................... 25 6.3.3. P2P Lending activities are highly depending of financial and banking regulation rules, even if « North-North » P2P Lending leaders try to present it differently. ............................................................. 25 6.4. IN 2010, P2P LENDING MARKET IS RENEWING IN THE UNITED STATES. BUT THE ACTIVITY IS NOW MORE FOCUSED ON FINANCIAL PRODUCT DISTRIBUTION (SAVINGS AND CREDIT) THAN ON « FREE » LOANS BETWEEN PEOPLE ................................................................................................................................................................ 26 6.4.1. « North-North » platforms are catch by regulation. They have to adjust their model and try to rebounce. ...................................................................................................................................................... 26 6.4.2. « North-South » platforms are in a better health. The market is really in demand (financing of MFI) and there is a huge growing potential (microfinance). ................................................................................ 26 6.4.3. Niche markets are interesting P2P Lending actors. ........................................................................... 28 6.4.4. Birth of Peer Financing ....................................................................................................................... 28 6.4.5. Actors are focused on the student loans opportunity. ........................................................................ 29 6.4.6. On a middle term, American market could grow significantly, probably with financial products distribution models (one or multichannels) .................................................................................................. 30 6.4.7. Banking regulation has assured its authority on the P2P Lending market. It will structure the market on a short term, but at middle term lobbying coming from the « Barbarians » of the Internet will continue. 30 6.4.8. Consumer education remains one of the biggest challenges for P2P Lending development: for « North-North » websites, it means more transparency and consistency between what is said and what is done. ............................................................................................................................................................. 31 6.4.9. Outside of the United