The population’s need for affordable non-bank loans due to a low credit rating or its absence, difficulties with the registration process, etc. could be “the main driver of the American P2P market,” according to an update from Robo.cash.
The national specifics are also very clearly found/observed in legislation. Platforms are regulated both “at the federal level (by at least three instances and numerous laws) and by individual states (in some states P2P activities are prohibited).” This makes the overall system very “cumbersome,” the team at Robocash wrote in a blog post.
The American market “can hardly be called favorable to new players,” the report noted while adding that registration and licensing of a business is “quite laborious and resource-intensive.”
This situation is “one of the reasons why only a couple of leaders continue to share the dominant position in the market.”
Meanwhile, in China, unlike the more conservative US markets, the face of the P2P industry in the East initially “determined the period of ‘free floating’.”
The same great need for affordable borrowing against the absence of any regulation “led to a real boom.”
At its peak in 2015, there “were about 3,500 platforms in the country.” However, this situation has predictably “led to massive fraud and problems.” Robo.cash further noted that about 40% of the sites “worked according to the Ponzi pyramid scheme, which resulted in millions of investors losing their funds after hundreds of players went bankrupt.”
After that, full regulation was introduced in China.
In accordance with it, Chinese P2P platforms “are now officially registered, acting as information intermediaries with fixed and transparent conditions.”
P2P loans themselves, as in the US, “are issued by banks.” A ring fence “is required: investors’ funds are separated from the platform’s funds, which guarantees their safety in case of financial problems or bankruptcy of the project.”
However, the instability of many players against the background of high default risk of borrowers and other unresolved issues, “continue to give the local P2P industry a reputation as one of the riskiest and least regulated slices of the shadow banking system in China.”
In Japan, P2P lending is “biased towards real estate and SMEs.” An interesting feature is the numerous “hometown funds” that attract investors “specifically to the local economy.”
The funds are “provided directly by the platforms.”
There are “no financial guarantees for investors from the platforms.”
At the same time, the investor “has access to anonymous information about the borrower, the availability of collateral for the loan, plans for the use of funds.” The industry “has the only regulator – the Financial Services Agency.”
P2P lending is now “quite widespread in the world, but still remains a new phenomenon in the financial market.”
Robo.cash analysts added that “more time will be needed to study how this alternative financing method works and continue to improve the practicalities of its implementation.”
For more details on this update, check here.