Can Peer-To-Peer Lending Kill Non-Banking Financial Companies?
Peer-to-peer (P2P) lending is a debt system that permits individuals to acquire or loan funds without involving any official financial institution. While Non-Banking Financial Companies (NBFCs) are financial establishments that offer banking services without meeting the legal definition of a bank.
With the emergence of numerous alternative lending platforms, conventional lending platforms have been exposed to a risk of losing its customary clients as these new platforms offer easy and potentially cheaper means of conducting business between consumers.
Why do borrowers prefer peer-to-peer platforms?
Borrowers prefer P2P lending platforms because of the following reasons:
1. Easy to apply. Peer-to-peer platforms offer an uncomplicated application process that can be gathered from anyplace and by anybody and appeals to the general borrower.
2. Approval of loans is generally faster. P2P platforms take very little time to approve loans to borrowers, unlike the conventional money lending platforms that take a great deal of time evaluating borrowers before approving loans for them.
However, each loan application should be individually assessed and shouldn’t be taken for granted that all applications are as quick as stated.
Why do investors prefer peer-to-peer platforms?
1. Reasonable gains. The measure of returns that an investor can earn relies upon his/her investment capacity or the amount of risk he/she is willing to take.
2. Diversification. P2P platforms give venture capitalists an opportunity to diversify their incomes by investing in an extensive variety of borrowers from various risk categories.
P2P or NBFCs?
Even though both P2P and NBFCs assume an imperative part in the financial market, the two platforms are different from each other. We have seen a surge of NBFC Registration in India in recent years.
While NBFCs generally deal the unbanked populace, P2P focuses on the businesses that that are normally locked out by conventional lenders.
While P2P platforms have grasped the use of present-day innovation, NBFCs have failed in the use of technology (warmly known as FinTech). This has truly influenced their development as they cannot generally compete effectively in the advanced world.
NBFCs have leeway over P2P sites with regards to getting clients since they rely on the word of mouth most effective marketing means. Generally, NBFCs depend on the conventional financial establishments like banks or fund-raise by the use of bond market forms.
P2P, then again, depends on individual investors to raise funds. P2P finds it difficult to teach the populace about this new platform and help them see how it works. It is part regulated (FCA have guidleines which are clear regarding regulated and non-regikated activities) and this does not always go down well with a portion of investors who are considering P2P due to not having all the information and gaining the correct education.
From the above analogy between NBFCs and P2P, it is clear that the two institutions can’t be perfect. Both have inadequacies yet, each of them have remarkable features that the other does not.
Even though P2P platforms draw in many people from the techno-dextrous mass, NBFCs ought not to consider them as a threat. Innovation is a fundamental tool in this era and for NBFCs to maintain their stand as the conventional financial institutions, they must embrace innovation.
Can P2P lending kill NBFCs?
The appropriate response is NO. Non-Banking Financial Companies need not regard P2P lending platforms as competitors rather, they should consider P2P as partners and band together with them to concoct solid business platforms which utilise technology to come up with customer-oriented products that meet their individual requirements.
Note: Your capital maybe at risk
Before making any investment or lending out funds, please ensure you thoroughly have researched the company, the market and understand the risks. Safe investing