P2P or Peer-to-Peer lending allows people to procure loans directly from other removing the requirement of financial institutions as intermediaries feels Bahaa Abdul Hussein. Websites facilitating P2P lending are on the rise as they are being seen as an alternative technique for financing. Some other popular terms used for P2P lending are “crowd lending” or “social lending”. The platform has been into existence since 2005, which means it is a recent technology. Many feel the platform has immense potential for disrupting the traditional banking system.

Challenges

The increasing popularity of Peer-to-Peer lending platforms have certain challenges associated with them. These challenges include the following:

  • Identity theft and fraud: Fraudulent activities, such as fake identities of borrowers, fraudulent loan applications, and phishing attempts can make this platform vulnerable.
  • Stringent regulatory requirements: There are many requirements like data privacy, anti-money laundering, licensing, and consumer protection regulations. Alterations in these regulations or insufficient compliance measures may result in obstacles like penalties and/or restrictions on Peer-to-Peer lending operations.
  • Risk of defaulting: Businesses and individuals that approach P2P lending platforms for financial loans usually have different creditworthiness scores. Thus, when these borrowers fail to adhere to the plans for loan repayment, the lenders may suffer from significant financial losses.
  • Cybersecurity risks: Seasoned cybercriminals or hackers could compromise crucial data through unethical penetration tricks. Cybersecurity risks affect Peer-To-Peer lending operations by diminishing their reputation and breaking user trust.
  • Fluctuations in market and economy: Economic and market volatility may emerge as major threats to Peer-to-Peer lending platforms. The repayment capabilities of borrowers may get affected by interest rate changes and unemployment rates. Such factors have a negative impact on the sustainability and profitability of these lending platforms.

Benefits

We will now explore the various benefits that have led to the popularity of P2P lending platforms. Check them out below:

  • Lucrative cost benefits: Peer-to-Peer borrowers enjoy attractive cost benefits as compared to the rates that financial institutions or banks offer.
  • Hassle-free and fast: P2P borrowers can get loans in swiftly and in a hassle-free manner.
  • Minimal documentation: These lending websites offer services in an extremely short period and require minimal documentation.
  • Ease of exchanging information: As these lending sites operate with an aim for community service, most customers are satisfied with the way they facilitate exchange of information.
  • More convenient and focused: The P2P lending platform is more convenient and focused as compared to banks and other financial organizations. There are less formalities included in the loan application procedures as compared to the latter.

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