If you wanted a loan for a house, car, or business, it used to be that you had to go into your local bank or credit union and meet with the person in charge. If you had bad credit, you were simply out of luck. But things are different today. Alternative forms of lending exist online and they often offer those with poor credit better terms.
The maturation of online lending
Older generations, including baby boomers, are naturally skeptical of technology. They grew up in an era that didn’t have internet and smartphones. So, while they’re becoming increasingly familiar and comfortable with technology, it’s not something that feels 100 percent natural to them. Millennials, on the other hand, don’t know any better.
Millennials represent the first generation to grow up with the internet. Since they were toddlers, it’s what they’ve known. So, when it comes to things like online banking, there’s very little hesitance. They respect the need for security, but they aren’t skeptical like previous generations are.
What does all of this have to do with online lending? Well, it provides the context for the growth of the industry. With thousands of millennials becoming “adults” every single day, the pool of loan applicants is skewing more and more towards this tech-savvy generation. And because they’re okay with the convergence of finance and the internet, online lending is experiencing significant growth and expansion.
Today, there are a number of major online lending platforms satisfying the growing demand from millennials and other demographics. Lending Club, Prosper, Upstart, Funding Circle, and OnDeck are considered the biggest.
Part of the appeal of online lending, from the borrower’s perspective, is the ease and speed at which they can gain access to capital. Whereas a small business owner spends an average of 26 hours
on the traditional loan process, and waits weeks to get an answer from the bank, online lending applications typically take less than an hour to fill out and command a response within a few hours. Furthermore, online lenders have an average approval rate of 38 percent, compared to 31 percent for large banks.
According to research by Transparency Market Research, the global peer-to-peer market for alternative financing could be worth as much as $897.85 billion by 2024
. That figure is up from $26.16 billion in 2015. Between last year and 2024, the compound annual growth rate (CAGR) is anticipated to hover just above 48 percent.
The appeal of online lending is that these individuals and companies don’t play by the same rules traditional banks do. For example, it’s not uncommon for online lenders to offer loans for people with poor credit
. It’s also possible for businesses to gain quick access to capital when time is of the essence. In other words, it’s a much more flexible form of financing. A rich future awaits
It’s not all roses and butterflies in the online lending industry, though. As expert Brock Blake explains
, “Skepticism toward this emerging form of lending has been building as the industry navigates through a particularly turbulent time. The surprise exit of the CEO of Lending Club, the largest online lender, raised questions about transparency for an industry that prides itself on it.”
Stock prices for Lending Club and OnDeck have both declined dramatically over the past few years, but don’t lose hope quite yet. Regulation is coming, and changes will be made, but there’s clearly a place for online lending in the greater finance industry.
The biggest question is: how rich will the future be? If the attitudes of millennials stay the same, then there’s likely nothing to worry about.