Chinese mass affluent consumers are increasingly opting to use peer-to-peer (P2P) lending platforms. The country’s banks should embrace this shift by forming partnerships with P2P lenders. In doing so, they can open up new revenue streams.
China’s P2P lending sector has experienced rapid growth in recent years, with 2,600 platforms by the end of 2015. The growth of these platforms has been driven by the supply of funds from retail investors and by demand for access to finance from individuals and owners of small and micro businesses.
Our upcoming Mass Affluents: Product Holding and Preferences in China report confirms there is an opportunity for banks to benefit from an increased focus on P2P lending. 54% of mass affluents claim to have used P2P lenders. Delving deeper, 40% of Chinese mass affluents have used them in the last 12 months, compared to 31% of retail consumers. This suggests P2P platforms represent a substantial acquisition opportunity in the Chinese market.
Despite global concerns around a crisis of confidence in the sector, China’s P2P market will continue to grow as it becomes more formalized and regulated. China’s Banking Regulatory Commission introduced P2P guidance regulations in 2015 that are already leading to consolidation of P2P providers while putting those that meet the requirements on a much firmer footing for the future. However, overreliance on P2P platforms is risky, and it is important to have a good mix of retail and institutional funding.
This is also a wake-up call for established banks to form partnerships with P2P lenders to which they can refer customers that do not satisfy their own lending criteria. Additionally, P2P lending platforms can help banks attract new clients and stimulate much-needed innovation.
By Resham Karira, Retail Banking Analyst