Peer-to-peer lending will celebrate its 20th anniversary in 2025. However, since Zopa’s initial P2P offering in 2025, the market has undergone significant changes. For instance, several P2P industry pioneers, including Zopa, are no longer involved in the P2P space.
Actually, during the past few years, a significant number of P2P brands are no longer in business, either as a result of increased regulatory demands or the expense of operating a complying firm. This makes one wonder whether the P2P lending business flourish in 2024 and further.
Potential Increase in Defaults
In the wake of the current economic downturn, many central banks around the world are increasing their interest rates. There is a chance that the default rate will increase for the whole P2P sector because the interest rates are increasing globally.
The industry average default rate since P2P’s inception has been between two and three percent, and investors have been advised to diversify their P2P portfolios in order to reduce the risk of losses. Even with this increased default risk, many P2P companies have never caused investors to experience capital losses.
More Stringent Rules and Regulations
Regulation generally helps investors by providing tools for risk management and safety nets that can help avert certain losses. Regulating P2P, however, usually results in more platform and investor management. New P2P investors now need to pass an appropriateness test to confirm that they understand the risks involved with alternative lending.
The unique criteria that each platform has to offer could be a little daunting for first-time investors. Before taking the plunge, make sure you understand the nuances of P2P investing because investors who regularly fail this exam might not be allowed to use the P2P platform of their choosing.
What Rewards Does P2P Lending Offers?
Although these risks may need to be managed by platforms and investors, there are benefits as well. For example, the market offers additional loan opportunities. This is mostly because traditional institutions like banks have been lending less frequently.
Furthermore, the higher interest rates mean that investors can now get greater returns on their investments. Therefore, it becomes a much more prosperous investment option for investors. While the economies are struggling, we might see improvement in the P2P sector when things start to get back on track.