The alternative finance sector is making its move and it is expected to change the face of the Australian lending market. This is why brokers are now being urged to adapt so that they can take advantage of any changes.
Alternative Financing in Australia
The largest alternative finance type that is making its mark in Australia is peer-to-peer lending. This alternative financing type is expected to have a profound impact on the lending market, just as Uber and Airbnb have disrupted both the transportation and accommodation industries. In fact, financial industry experts believe that peer-to-peer lending has the potential to reshape the Australian lending market. This is attributed to the fact that this form of lending gives consumers a faster and more-efficient form of financing when compared to traditional lending.
What is Peer-to-Peer Lending?
At present, peer-to-peer lending, also known as P2P lending, is predominately used to fund debt consolidation, the purchasing of products such as cars, and also business loans. Australian P2P lenders are not currently lending on residential and commercial property in Australia, but many financial experts, including P2P lenders themselves, suggest that it is only a matter of time before they move into mortgages.
According to the Australian Securities and Investments Commission (ASIC), P2P lending is also known as marketplace lending. This is attributed to the fact that this form of lending is typically online based and uses a website lending platform to match investors with borrowers.
ASIC note that P2P lending bypasses a traditional lender, and instead individuals and businesses borrow money from investors, who may be an individual or company. Investors in P2P lending usually buy a financial product that is referred to as a managed investment.
A managed investment pools investors then puts all of the investors money together. The funds are then distributed to borrowers, who take out a loan and then repay this money over time, with interest. Investors are then repaid their investment, with interest, periodically over the term of the investment.
The managed investment is usually run by a financial service provider, or lending platform which acts as an intermediary between investors and borrowers. The platform operator makes money by charging fees to both an investor and borrower. Investors and borrowers are typically attracted to using P2P lenders as they offer good rates of interest.
Expected Growth of P2P Lending
P2P lending launched in Australia in 2012, and while these lenders are focusing on debt consolidation, personal loans and small to medium sized enterprises (SMEs), many are seeking to branch-out into mortgages. Regulators are beginning to recognise the increasing strength of P2P lenders and they are starting to adapt legislation to suit.
As changes are made to legislation, the market is expected to see more P2P lenders enter the market. Plus, these new lenders are likely to be able to offer more financial solutions that are more effective than traditional lenders. P2P lending is expected to be driven by the next generation of financial consumers who are increasingly turning to online banking to meet their needs.
Shift in Consumer Attitudes
Australian consumers are being bombarded with traditional lenders who are continually putting their needs before their customer needs. Therefore, consumers are looking for alternatives that look after their best interests.
With P2P lenders expected to change the landscape of lending, then it is important that brokers understand how this platform works. This will then, at a later date, enable the broker to play a fundamental role in the P2P lending process and maximise their share of the lending market.
Join the Broker Revolution
eChoice, who has been in operation since 1998, is an innovative financial services brand, one that is amongst the most recognised in Australia. As such, eChoice sets aggregation benchmarks and provides customised lending systems that are market-based. Plus, eChoice provide you with comprehensive support and ongoing training as technology and innovative solutions become available. To find out how you can join the eChoice #BrokerRevolution, click here.
Do you want to know more about Peer-to-Peer Lending? If you said YES, then contact eChoice.
Written by eChoice
Since 1998, eChoice has helped more than 50,000 Australians secure a home loan through its network of over 25 lenders and hundreds of loans. Best of all our service is cost and obligation free!