Alternative Lending Becomes Traditional

I was in an elevator the other day and heard the “soft rock” version of Nirvana’s Smells Like Teen Spirit. As shocking as that was, it got me thinking a bit about how over time “alternative” things go mainstream.

In the banking context, peer-to-peer lenders are still “alternative” and they still represent a very small part of the overall lending pie, but with the recent news that Union Bank is going to front end part of their lending with Lending Club one starts to wonder how mainstream these lenders are getting. With advances in technology and the ability mine new data sources for insights on risk and customer behavior these firms can move quickly. One of the big wild cards for these lenders is where worldwide regulators are going.

In our recent research, we see peer-to-peer lenders are most attractive to the Millennials (18-34 years old) with a little over 20 percent indicating they are very likely to use a peer-to-peer lender in the next 12 months. That said only 1 percent of them are currently using these lenders. Additionally, consumers have lower perceptions when compared with banks in areas like security of transactions, ease of completing transactions, and overall trustworthiness.

While we might not see peer-to-peer lenders taking over from traditional banks this year or next, it isn’t out of the question. I never thought I’d hear “soft rock” Nirvana.