On The Money

P2P Lenders are Set to Make Waves in the Financial Sector

Peer-to-peer (P2P) LendingPeer-to-peer (P2P) lending could be an attractive investment prospect in Australia. Given the leverage and opportunistic nature of the banking sector, non-bank financial assistance and lending are bound to open the gates wide for competition.

Advantages and Disadvantages

Non-banks aren’t as cumbersome, boasting minimal compliance, a shortlist of legacy core systems, and distribution infrastructures. This allows operations to continue with less cost. Capital is flexible and proprietors can apply as much or as little leverage, depending on an existing economy. In contrast to banks, though, they pale in comparison when pitted head-to-head with regard to financial schemes.

Non-banks don’t have the capacity of substantial financial scale, long-term credit histories based on borrower performance, access to safety deposits secured by the government, and liquidity facilities under the Reserve Bank of Australia. They do not have the benefits of brand association as well.

An Innovative Business Model

Online facilities for personal loans, mortgage release, consumer and startup lending, and automated investment advisory are a few sectors for financial technology. P2P lending has yet to make a dent in the competitive area against banks but analysts see the opportunity. P2P lending will bear a significant growth in the following years and eventually lure borrowers away from banks.

Banks are massive companies. Technology is where P2P lending can gain an edge sharp enough to disrupt banks. Community banks and credit unions without the economic scale of huge banks are more likely to face trouble when placed against P2P lenders.

Three Notable Non-Banks in Australia

FirstMac, Pepper Group and Liberty have gained from the opportunities of pioneering before the Global Financial Crisis could deal damaging blows. FirstMac and Liberty also gained support from the Australian government’s investments, aiding the two in surviving bankruptcy.

Pepper Group, on the other hand, used the GFC to inject capital and expand operations overseas.

As these companies have performed, resurgence lies in the progressive reopening of residential mortgage-backed security and asset-backed security markets. This provides investors secured bonds accessible through collaterals of backed securities and other receivables.

In 2015, the Macquarie Group reports that Australian P2P lenders have the capability to secure around $29 million of these securities and receivables. Its appeal lies in it being a debt covered by safeties of a thousand hard assets, instead of being an unsecured loan released by a bank.