The rise of peer-to-peer lending, where many people are each able to invest in a small slice of a larger loan, has been one notable aspect of the post-GFC finance world.
In April, at the world's largest gathering of peer-to-peer lenders in New York, LendIt, the industry started to show signs of moving away from its startup persona, and become more mainstream.
This should come as no surprise to the banking sector, as many large banks are either investing into the sector, or even taking equity positions. What might be a surprise is the speed of expansion.
Would you do business with a total stranger?
Last year, Digital Finance Analytics, as part of a survey into Australian households' attitudes to banking, finance and technology, asked respondents whether they would consider peer-to-peer platforms. More than 30 percent of those termed "Digital natives" said "yes", along with about 12 per cent of "Digital Migrants".
"The results show that those who are digitally connected are more likely to consider it," said Martin North, the principal of Digital Finance Analytics.
"We also asked SMEs about their appetite to borrow from a P2P source, and 35 per cent of business owners said they would be interested to consider it."
Billions on the market
Fast forward back to LendIt, a year later, and Ron Suber, president of Prosper Marketplace, which owns Prosper, America's first peer-to-peer lending marketplace, was claiming to have hit the US$3 billion mark in personal loans, the last billion in lending racked up in just a matter of months.
Suber said this was a sign of the times, and set out ambitious goals including becoming to the lending industry what PayPal, Uber and Amazon has done in changing the face of their respective industry sectors.
He pointed to other highlights for the industry, such as loans being taken on by investors and banks; several of the P2P lending platforms being valued in the billions of dollars – as evidenced by the IPO of Lending Club in the US; and the first examples of loans being used to back bonds.
Small business targeted
Another online lender with a strong presence at the LendIt conference was OnDeck Capital, one of just two marketplace lenders listed on the New York Stock Exchange. In contrast to most platforms and loan originators, OnDeck specialises in small business loans, making more than US$2 billion in loans to small businesses across all 50 US states and Canada.
OnDeck CEO Noah Breslow took advantage of LendIt to announce that his firm was moving into the Australian small business lending market – its first market outside North America – via a partnership with business accounting software provider MYOB.
Like all the other peer-to-peer lenders, OnDeck uses analytics to assess creditworthiness based on actual operating performance, not solely on the owner's personal credit.
"Similar to the US market, in Australia we see a huge gap between small business financing needs and the availability of capital from traditional sources," Breslow said. "We believe our online platform is well suited to address the capital needs of Australian small businesses."
The US firm said it expected to start making small business loans in Australia in the second half of 2015.
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