The future of P2P marketplaces and its potential for disruption in traditional investing
Peer-to-peer (P2P) marketplaces have come a long way in their short period of existence. Already, they have managed to disrupt traditional industries such as transportation, hospitality, and retail. When it comes to finance, the potential of P2P marketplaces for disruption in the traditional investment industry has yet to be fully realized. However, with the advancements in technology and the growing trend of democratization of investment, P2P marketplaces are poised to transform how people allocate their funds. Let’s look closer at the future of P2P marketplaces and how they may cause further disruption in traditional investment.
Looking back
The traditional investment industry has been dominated by large financial institutions for decades. Or even centuries – depending on the criteria for ‘large financial institutions’ and ‘traditional investment industry’. Nevertheless, these institutions had monopolized the investment market, which, especially in the early days, meant limited access for the average customer. Investment options were scarce and required in-depth (or even insider) knowledge to turn a profit just a couple of decades ago.
Sure, in addition to commodities, stocks and bonds, a person could’ve invested in real estate and gold. And, while each of these investment vehicles has a drawback, there’s nothing wrong with diversifying your investments. However, investing in traditional assets has been out of reach for most of the world since the very beginning. Why? Well, because of money. To participate in the trade of goods, stocks, bonds, gold and real estate, you have to have a certain amount of money that most people simply do not have lying around.
Certainly, modern investing has become more affordable due to the development of modern investment vehicles. Like exchange-traded funds (ETFs) and real estate investment trusts (REITs) among others. The emergence of the internet and all subsequent technology has helped loads, too. Mobile devices that allow access to the internet combined with trading platforms and apps have opened the world of investment to a much larger public than before. Alas, most of these investment assets require advanced knowledge of financial markets and do not offer the desired return on investment. No matter what bulletins and web banners say about long-term returns of the stock market, it’s not a 100% guarantee.
Over time, however, the rise of P2P marketplaces is changing the game by allowing the customer to access asset allocation alternative with greater ease and transparency.
P2P marketplaces are online platforms that connect loan originators with persons who want to put their money to work, outside of traditional financial institutions. This allows loan originators to obtain funds to issue loans and customers to earn returns on their investments. The marketplace acts as a facilitator, taking a fee from loan originators for the services provided. It’s quite simple. The best part? You only need a little amount to get started! Swaper lets you start with as little as €10.
Looking forward
The future of P2P marketplaces is definitely very bright. With the advancements in technology and the growing trend of democratization of investment, P2P marketplaces are already transforming how people allocate their funds. Here are some potential future developments:
- Expansion into New Asset Classes. Currently, most P2P marketplaces focus on consumer and small business loans. However, as the market size continues to grow there is potential to improve the current focus or for expansion into new asset classes such as real estate, art, and commodities. This will provide customers with a wider range of options where to invest their money, diversifying their portfolios and reducing risk.
- Increased Regulation. As P2P marketplaces become more mainstream, there will be an increasing need for regulation. The regulatory environment for P2P marketplaces is still evolving, but it is expected to become more stringent in the coming years. This will help to weed out fraudulent platforms and ensure the safety of customer funds.
- Artificial Intelligence. Artificial intelligence (AI) has the potential to transform P2P marketplaces by improving the matching process between loan originators and customers. AI algorithms can analyze loan originator and customer data to identify the most suitable matches, reducing the risk of default and increasing returns for customers.
Potential for disruption
P2P marketplaces have the potential to disrupt traditional investment in several ways. By eliminating the need for intermediaries such as traditional financial institutions, P2P marketplaces allow loan originators to access funds on more flexible terms, increasing the overall ability of the loan originator. At the same time, customers can earn a higher return on interest because of reduced fees and charges.
The average customer will be likely to flock towards P2P marketplaces for opportunities to invest their money, seeing as they often offer better returns on investment and are more transparent than large financial institutions. Transparency is especially important, as it allows to streamline from their investments into worthwhile, ecological, and ethical causes. Transparency can help increase the overall return on the customer’s investment as the potential for investment loss is reduced. Therefore, reliance upon traditional investment institutions will diminish and could even cease to exist over time.
Bottom line
In conclusion, P2P marketplaces represent a significant potential for disruption in the traditional investment industry. As these marketplaces continue to develop, they offer customers increased transparency, access to a wider range of options, how and where to invest at lower starting prices, and the potential for higher returns on their investments. With the continued democratization of investment and advancements in technology, P2P marketplaces are poised to revolutionize the way people generate returns on their money, by continuing the shift of power from large traditional financial institutions to individual customers.
However, as with any disruptive technology, ahead lie challenges and regulatory issues to overcome. Nonetheless, the future of P2P marketplaces looks very bright. And it will be exciting to see how they continue to evolve and reshape the investment landscape. Don’t miss the train! Check out our options and start investing with Swaper today!