The question of the difference between conventional banking and peer-to-peer lending will become very important in the coming years. With an increasing number of platforms functioning similar to banks and offering high accessibility and affordability, it is no surprise that many people think the death of traditional banking is near. Moreover, online p2p platforms enable investors to earn high interest. That is why banks are becoming redundant and sluggish. Here in this article, we will describe the impact of p2p lending on traditional banking and where it's going.
How Is P2p Lending Different From Banking?
All the p2p platforms operate online and allow borrowers to get funds directly from lenders without depending on any third party like banks. The emergence of these platforms also helps investors to earn high returns in this environment of low returns. Traditional investment options like cash saving accounts and stocks offer interest rates that are not enough to beat inflation. That is why p2p lending has gained popularity within a short period. The main difference between p2p lending and banking is the difference in interest rates.
Why P2p Platforms Come Up?
For years banks have had a monopoly over financial products they offer. Some other financial institutions had decades of collected capital and government support to keep up. Due to their dominance in the financial industry, banks have been able to get as much profit as they can to reduce the risk from their bottom line. Unfortunately, in the economic downturns of 2018 and 2020, most banks become silent instead of working on getting capital moving. Instead, they start giving out only a few loans and offer low interest to investors.
All these situations were for a little amount of time till the emergence of alternatives. Then, P2p platforms arise to offer functions similar to banks but with more affordability, accessibility and consumer-friendly features.
The Popularity Of P2p Lending In Developing Countries
In the beginning, most people thought that as p2p lending is a fintech technology, it only works in developed countries like Canada or London. But it is not true. It's also present and working well in developing countries of Asia, South America, Africa and Eastern Europe that can reap the most benefit from fintech.
According to research, around two billion people in the world do not have access to banks. Most of these people are living in backward rural areas that have poor banking infrastructure. Moreover, due to the great control of the Government on capital and unstable economies, people in such areas struggle to find good investment opportunities and ways to access funds when they need them the most.
How Peer To Peer Lending Solves The Problem?
Instead of waiting for banks to fulfil the requirements of people, p2p platforms bring supply and demand together in the areas that need more money. The individuals who have capital can lend money to the individuals looking for loans. Due to the straightforward online format, people do not need to go to any bank or city. With an internet connection, they can register themselves on p2p platforms to secure a loan when they need it.
Due to this ease and flexibility, the impact of p2p lending on banks can be severe. People are turning towards alternatives to traditional banking. Peer to peer lending is beneficial for both the borrowers and investors. When we talk about p2p lending vs traditional banking, we might not be saying goodbye to bans completely for now. But if you talk about an industry that is changing the financial industry, it is p2p lending. It is a great innovation that provides both investors and borrowers with the best and bright future in the market.
Ruby Singh
We Provide Digital Marketing Services in All Over India.
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