The Future of Peer-to-Peer Lending : Determining Market Success Factors in Finland
Toivonen, Olli (2018-06-04)
The Future of Peer-to-Peer Lending : Determining Market Success Factors in Finland
Toivonen, Olli
(04.06.2018)
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Turun yliopisto
Tiivistelmä
Purpose and background for the study:
The recent development and widespread adoption of information technology has led to the emergence of sharing economy online platforms, which by creating new business models aim to eliminate traditional intermediaries. Peer-to-peer lending companies, which emerged to disrupt the existing consumer credit market, function as online marketplaces connecting individual borrowers and savers. The platforms facilitate the lending process by creating structured lending agreements, thus giving the borrowers and savers a way to bypass the traditional financial sector. Since the global inception in 2005, and especially after the 2007-2009 financial crisis, the industry has gathered substantial momentum with yearly loan issuance volumes surpassing multibillion dollars in some developed countries. Despite the strong global growth figures European market lags far behind its global peers. In the Nordics the market is still in its infancy and Finland is currently the only Nordic country with a functioning P2P lending market. This research is addressed to answer the academic research gap related to the European P2P lending market. The exact factors leading to the success of an individual P2P lending market are still unknown and modelling of the factors which foster the market growth is challenging. The purpose of this study is to analyse which factors have affected the rise of the industry in Finland and debate whether P2P lending can achieve widespread success in Finland and whether it can rise to the challenge of incumbent banks as a form of financing.
Data and methodology:
The research methodology is a mix of qualitative in-depth interviews and quantitative survey questionnaires. The data was gathered by interviewing two different stakeholder groups in the P2P lending community and a representative from the incumbent financial sector. In addition to the interviews a survey was addressed to the current peer-to-peer borrowers. Through the interviews and survey answer I was able to extract factors which have influenced to the rise of peer-to-peer lending in Finland.
Key findings:
I find that the emergence and growth of the Finnish peer-to-peer lending market was particularly influenced by four main factors; country-specific institutional factors such as Finland ‘s predictable legislation, the provision of finance to previously unfinanced customer segment, highly customer-focused lending procedure and the efficient utilization of current ICT technology. The Finnish peer-to-peer lending companies succeeded in developing and copying global industry best practices in credit provision, user interface and the algorithmic model on credit default risk. The result was a highly competitive service offering in the consumer credit market. Although the Finnish peer-to-peer market has experienced strong growth figures in the past the industry’s future growth is not evident. The incumbent financial firms’ large investments on digitalizing existing lending practices have started to reduce the newcomers competitive advantage in consumer lending. Therefore, the peer-to-peer lending companies are seeking future growth opportunities from expanding into new geographical markets and developing new products to their portfolio.
The recent development and widespread adoption of information technology has led to the emergence of sharing economy online platforms, which by creating new business models aim to eliminate traditional intermediaries. Peer-to-peer lending companies, which emerged to disrupt the existing consumer credit market, function as online marketplaces connecting individual borrowers and savers. The platforms facilitate the lending process by creating structured lending agreements, thus giving the borrowers and savers a way to bypass the traditional financial sector. Since the global inception in 2005, and especially after the 2007-2009 financial crisis, the industry has gathered substantial momentum with yearly loan issuance volumes surpassing multibillion dollars in some developed countries. Despite the strong global growth figures European market lags far behind its global peers. In the Nordics the market is still in its infancy and Finland is currently the only Nordic country with a functioning P2P lending market. This research is addressed to answer the academic research gap related to the European P2P lending market. The exact factors leading to the success of an individual P2P lending market are still unknown and modelling of the factors which foster the market growth is challenging. The purpose of this study is to analyse which factors have affected the rise of the industry in Finland and debate whether P2P lending can achieve widespread success in Finland and whether it can rise to the challenge of incumbent banks as a form of financing.
Data and methodology:
The research methodology is a mix of qualitative in-depth interviews and quantitative survey questionnaires. The data was gathered by interviewing two different stakeholder groups in the P2P lending community and a representative from the incumbent financial sector. In addition to the interviews a survey was addressed to the current peer-to-peer borrowers. Through the interviews and survey answer I was able to extract factors which have influenced to the rise of peer-to-peer lending in Finland.
Key findings:
I find that the emergence and growth of the Finnish peer-to-peer lending market was particularly influenced by four main factors; country-specific institutional factors such as Finland ‘s predictable legislation, the provision of finance to previously unfinanced customer segment, highly customer-focused lending procedure and the efficient utilization of current ICT technology. The Finnish peer-to-peer lending companies succeeded in developing and copying global industry best practices in credit provision, user interface and the algorithmic model on credit default risk. The result was a highly competitive service offering in the consumer credit market. Although the Finnish peer-to-peer market has experienced strong growth figures in the past the industry’s future growth is not evident. The incumbent financial firms’ large investments on digitalizing existing lending practices have started to reduce the newcomers competitive advantage in consumer lending. Therefore, the peer-to-peer lending companies are seeking future growth opportunities from expanding into new geographical markets and developing new products to their portfolio.