Less Than 1% of the US Population Uses P2P Loans

The rapidly growing P2P lending market in the US was able to reach the pockets of a surprisingly small fraction of the US population: the most recent estimations by FICO suggest that less than 1% of the US population is borrowing money from P2P/marketplace lenders.

Although P2P lending still seems to be in its infancy in the US, the industry has demonstrated a high potential, growing from $889 million in issued loans in 2012, $2.9 billion in 2013 and $6.6 billion in 2014. By 2016, P2P lending in the US was expected to reach $32.8 billion.

The digital generation and P2P lending in the US

In the end of June 2016, FICO published the results in an extensive consumer research study that looks at the digital generation (18–34 years old) and the way they are consuming alternative financial products – P2P/marketplace loans in particular.

As described in the report, The Digital Generation (Gen-D) is made up of technologically savvy consumers comfortable using all types of devices and apps. While millennials and Generation X make up a large portion of this audience, Gen-D is more of a mindset. They’re having some very expected and unexpected impacts on our economy—and it’s a group that will increasingly dominate consumer spending for decades.

Out of $3.4 trillion of outstanding US consumer credit, ~20 billion are reported to be in P2P loans. Clearly, regardless of the growth rate, the P2P lending industry is still an insignificant part of the total number of consumer loans, which speaks both of the early stage it is in and tremendous opportunities for smart solutions. As a reassurance of the opportunities, the report suggests that the number of those consumers that are very likely to consider a P2P lender in the next year has increased from 8% in 2014 to 13% in 2015.

Interestingly, the consumer segment with the most interest in P2P options consists mostly of those with high-delinquency risk—60% would be very likely to seek a P2P loan in the next year. It is both a warning sign for P2P lenders to improve risk management solutions and an opportunity to tailor services to a particularly interested group of consumers.

High-delinquency customers are the most likely to be interested in P2P loans, which they may be using to refinance existing debt. Since these loan portfolios have not yet been tested with a significant economic downturn, the risk professionals at these firms should be investing in predictive analytics to ensure they are addressing risk properly.

High-delinquency consumers are 5X more likely to use a P2P loan vs. an average US consumer

Consumers that fall into high-delinquency group (those who have previously experienced bankruptcy, auto repossession, or foreclosure) are the most likely to use payday loans and P2P loans.

Payday loans are known to represent the phenomenon of legal sharking, with lenders preying on the segment mostly rejected by traditional financial institutions. The risky segment has little to no choice but to turn to an alternative source of financing and refinancing, which constitutes both increased credit risks and an opportunity to expand in an underserved consumer segment.

Given that 31%, or approximately 76 million adults in the country, are either struggling to get by or are just getting by in terms of financial health, the opportunity for alternative lending industry goes beyond the digital generation opening a chance for new entrants to build smart solutions and address the financial needs of a substantial part of the US population.