Yesterday we received a report from Juniper Research, a leading UK-based market research firm that specialises in the finance industry and emerging technology. Its latest whitepaper titled “Alternative Lending — The Future of Personal & SME Loans” makes interesting reading for Lendo, as in the opening paragraphs, it says, “alternative lending assets have very little correlation with other existing asset classes. Thus, it is a good option for investors wanting to diversify their portfolio and to decrease risks.”
The advantages of alternative lending platforms
It identifies the main advantages of digital platforms as:
· Operational cost reduction, allowing for cheaper loans
· A simplified user experience
· Use of online data that removes the need for analysis of a customer’s past debts
· More accurate underwriting processes that lead to higher returns on investments.
Furthermore, alternative lenders are also able to focus on borrowers that are underserved by traditional lending institutions; composed of potential borrowers that do not fulfil all the criteria of traditional lending institutions.
Alternative Lending Market Dynamics
Juniper Research points out that one of the main challenges faced by alternative lending companies is the inability to make repayments. By offering loans to high risk customers, platforms and investors assume a high risk of not getting the loan repaid.
This is a challenge that Lendo has covered, because all our loans will be in exchange for crypto collateral. This removes the issue of clients defaulting on loans., this protecting our regulated lending partners.
Strong challengers to traditional financial institutions
Juniper Research warns that traditional FIs (Financial Institutions) should not turn a blind eye to alternative lending. Although the current market share may make them look like insignificant players, alternative lenders fast growth rate indicates that they may be the main channel for individual and SMEs loans in the future.
The research suggests that the best way in which FIs can stop haemorraghing clients to alternative lenders is:
· Partner with a fintech company that has the knowledge and expertise to provide an existing alternative lending digital platform.
As for the ways in which alternative lending platforms should proceed to grow what is a fairly new market, the report proposes:
· Invest in technology to make solutions faster and simpler.
· Improve algorithms and use Big Data to accept more unserved borrowers.
· Automate as many steps of the lending process as possible to offer competitive prices in comparison to traditional players.
A Revenue Forecast
Juniper Research estimates that the alternative lending sector will reach $137 billion per annum by 2023. This figure represents a growth of 400% starting from the end of 2018, as it suggests the market is worth just under $30 billion currently.
The report also has some other statistics of interest:
· We forecast that the proportion of loan value attributed to platform operators will increase from 11% in 2018 to 23% in 2023, a CAGR of 14%.
· We forecast that China will maintain its position as the country with the highest ‘alternative’ loan origination in 2023 at $314 billion.
· Alternative lending will continue to gain traction because of the short approval periods, easy accessibility and lower rates. By 2023, loan origination value via alternative lending platforms will approach $588 billion annually, 41% of global SME financing.
Overall, this survey indicates robust growth for fintech platforms and a growing demand for personal and SME loans globally from people and businesses that wish to, or need to, bypass the lending models operated by traditional financial institutions.
Lendo is in a strong position in the Alternative Lending market
Lendo is positioned via its fintech business model to offer borrowers a flexible and easy-to-use service that has all the advantages of an alternative lending platform as outlined in the Juniper Research report. Furthermore, this research adds weight to the Bloomberg report that we discussed at the beginning of the year, which stated that crypto-related lenders (like Lendo) are finding a strong demand despite a bear market.
Indeed, although Lendo has not yet launched its lending platform, the advance demand for our products has been strong, with pre-order loan applications already exceeding €188 million.
We are delighted to see that this latest piece of research from Juniper further confirms that Lendo has a very strong long-term business model in place.