This is the third part in a series of blog posts written by Stu and Chris that first appeared on LendAcademy regarding the state of the p2p bitcoin lending industry. This article was written by Chris Grundy, Marketing Manager at Bitbond, who tries to take account of more traditional lending platforms as well blockchain-based solutions. All feedback is encouraged and welcome. Feel free to connect on LinkedIn or via email.
In August 2015 I wrote my first installment of the State of the P2P bitcoin lending industry. Since then, we’ve seen seismic shifts across the landscape, with major players declining and new ones taking their place. Here, I want to give you my perspective of P2P lending in 2017, looking at both blockchain-based and more traditional solutions.
In this post, I start off by giving a short overview of the p2p lending space as it stands right now, explaining the key developments of 2016. Finally, I outline what the future holds for both bitcoin and non-bitcoin lenders, and show why there are many reasons for 2017 to be a year of growth.
2016: a challenging year for p2p lending
According to Orchard’s quarterly report, loan originations across the US industry reached $2.045 billion in Q4 of 2016. Although this is a significant increase from the $1.85 billion reached in the previous quarter, it is still well shy of the $3.8 billion generated in Q4 of 2015. Thus, loan volume has nearly halved since last year, and major player Lending Club as added fuel to the fire with dubious investment tactics.
Further bad news from the US-market came from OnDeck, which posted big losses throughout 2016, despite promising originations. Losses for 2017 seem pre programmed, and it is unclear if new business developments can stop the bleeding.
In addition to the stumbling loan volume, charge-offs have increased more steeply than anticipated, and impending regulation in China threatens the 5,000 p2p lenders currently operating unsupervised there. 2016 has been a challenging year for the industry.
P2P lending in Europe grew despite challenges
Despite the struggles faced by p2p lenders across the pond, continental platforms have continued to grow and prosper in 2016. Bondora, the Estonia-based marketplace lender, reached €1 billion in funded loan volume for example; a significant milestone for Eastern European p2p lending.
Latvian neighbour Mintos laid down an equally impressive marker, taking only a year and a half to process over €50 million in loan volume. In the UK, Funding Circle is growing rapidly, surprisingly jumping by 50% since Brexit.
[Stu here, remember that EU markets for p2p lending are much more fragmented than our large unified market here in the US]
Indeed, p2p lending in Britain is dealing with the potential disaster of Brexit far better than most had anticipated. The sector continued to expand in 2016, growing an impressive 39% yoy to £3.2bn, according to research from BondMason. Besides these encouraging signs of growth, the industry in Britain seems to be maturing and moving into the mainstream. This is highlighted by Zopa currently seeking a banking license, as well as the UK government making the first £1,000 peer to peer earnings tax free.
Although the numbers in Europe’s p2p landscape are diminutive compared to their US counterparts, they are important signs of growth in a young and thriving sector.
Bitcoin p2p lending: The decline of the old guard
Anyone active in the P2P bitcoin lending industry will have noticed the decline of BTCJam and BitlendingClub. Both were stalwarts in the space and regularly set up impressive monthly loan volumes in a niche yet highly disruptive sector of the industry.
So what is the reason behind their current struggles, and what does it say about the bitcoin p2p lending industry as a whole?
First, let’s look at the former market-leader BTCJam. Its decline is particularly striking, as the San Francisco based platform raised more than $11 million in equity funding, eclipsing all competitors in the bitcoin p2p lending field. BTCJam didn’t throw away the money either, managing to generate over $18 million in loan volume across 20,500+ funded loans.
The twist in BTCJam’s fortunes came when CEO Celso Pitta stated that the platform was closing its doors to US customers. Since March 2016, US-based borrowers and lenders have no longer been able to open an account with BTCJam. As a result, the number of current loans listed on the platform has slumped to 0, and the subreddit has already claimed the platforms untimely demise.
In similar circumstances, BitlendingClub - another major player in the space - announced it was shutting down operations in December 2016. Like BTCJam, BitlendingClub cited growing regulatory pressure as the reason, although here the pressure came from the Bulgarian authorities.
Having funded nearly 10,000 loans with a total value of almost $8 million, the decision to shut down BitlendingClub is actually more of a pivoting towards a business lending platform called Loanbase. But still, it is another p2p bitcoin lending platform bit the dust in 2016.
P2P lending in 2017 | Still a viable option?
Although the skies may have briefly darkened over the p2p lending industry, 2017 will be a time of renewed vigor for retail and institutional investors. Defying the regulatory challenges which other platforms have succumbed to, Bitbond recently received its own licence making the Berlin-based p2p lending company one of the first to do so in the blockchain space. With another successful funding round of $1.2 million closed in early 2017, Bitbond is making sure that bitcoin lending remains a viable option for individuals all around the world for years to come.
Bitbond is not the only thriving lending platform in the blockchain space however, as innovative, UK-based startup BTCPop was recently acquired and has since undergone many promising changes.
Things seem to be looking up for traditional marketplace lenders as well. Just a few days ago, Prosper finally inked a deal with Soros and Jefferies which could be worth up to $5 billion. The deal stipulates how a vast quantity of consumer loans will be sold to a group of reputable investment firms over the next 24 months.
Even the troubled giant LendingClub has shown promising signs of recovery in 2017, beating Q4 estimates and signaling a significant turnaround so far.
In Germany, 2017 started off with a bang too, as AuxMoney secured €1.5 billion from Aegon. The Dutch insurance company plans to invest into consumer loans on the platform over the next 3 years. For a European platform, this is a staggering amount of money, and is a great portent of things to come.
On the flipside, this massive increase in capital will most likely create a downward pressure on rates, potentially reducing the returns retail investors are likely to make. The good news is, that with so many platforms around, you are sure to find one that matches your risk/return profile perfectly.
Thanks for reading, and let me know what you think in the comments below.