Guest post written for & published by Bitbond, the Premier Bitcoin Peer to Peer Lending Platform:

The Peer to Peer (P2P) lending industry across the European continent is growing at an exceptional rate. The European online alternative finance market grew by 144% last year to nearly €3bn and could top €7bn by the end of 2015, according to CCAF & EY. We look at the factors that are driving this incredible growth within the peer to peer lending industry:

1) Maximise Use of Technology: allows the peer to peer lending platforms to introduce investors directly to individuals or businesses looking for loans. The cutting edge technology has facilitated new platforms to make loans faster and cheaper whilst operating at a very low cost compared to traditional financial institutions with their large and expensive corporate infrastructure and branches.

2) Demographics: the younger generation are very comfortable and prefer managing their finances online and are also most likely to be rejected for loans by traditional financial institutions, hence for this generation peer to peer lending is seen as win-win. Also, they see banks in particular in a negative light since the global financial crisis of 2008 and prefer to seek alternative financing solutions.

3) New Capital Requirements for Banks: following the global financial crisis, banks are now forced to hold more capital in general and also allocate more capital to customers considered to be of higher risk. Banks have also grown more risk adverse with their lending decisions. This in particular impacts small to medium enterprises who are considered riskier than large corporates, but are essential for the growth and providers of many jobs in any economy. Hence, a need for alternative funding was established.

4) Higher Rate of Return: with the central banks in the UK and the Eurozone keeping interest rates at near zero, savers are looking for a higher return on their cash. By lending money to individuals or businesses at reasonable rates of interest as an investment it has provided a good source of income whilst diversifying from traditional shares and bonds.

5) Government and Regulator Support: The UK and European Governments are supporting lending to businesses via peer to peer lending platforms even with taxpayers funds, whilst also the regulators have ensured a suitable framework has been laid out to support the growth of the industry and ensure the peer to peer lending providers are monitored to reduce any potential blow-ups.

The future looks bright for the peer to peer lending sector as the underlying conditions that have fuelled its growth in the last 5 years are set to remain. Presently, despite its exceptional growth so far – the industry only accounts for 2% of the credit lending market in Europe, which mean there is plenty of opportunity to continue its extraordinary growth rate over the next 5-10 years. Which is good news for both borrowers and investors.

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