Traditional lenders feel the heat as P2P firms gain ground

Peer-to-peer lending companies are expected to pose a strong challenge to traditional lenders in China, as they continue to attract more customers and enterprise clients with lower financing costs, experts said.

P2P lending is the practice of lending money to unrelated individuals, or peers, without going through a traditional financial intermediary such as a bank.

By the end of July, there were 1,283 Internet lending companies and the transaction volumes of these companies will be around 250 billion yuan ($40.7 billion) by the end of this year, according to data from wangdaizhijia, a portal offering Internet lending information.

Transaction volume is expected to surpass 1 trillion yuan by the end of 2016, according to Tian Weiying, CEO of p2p eye, a portal offering Internet lending information and data.

Li Shiqi, secretary-general of the Beijing Credit Guarantee Association, said P2P companies will continue to attract more customers as the overall financing environment for small and medium-sized enterprises remains difficult.

Li Yaodong, research head at 01caijing, a portal that tracks Internet finance, said Chinese P2P lending companies were initially focused on individual borrowers and the funds were disbursed for purposes like education, shopping or small business. "Most of them have started to serve enterprise clients from last year," he said, citing the example of Shenzhen Hongling Venture Capital Investment Co Ltd.

According to Li from 01caijing, several P2B (person-to-business) companies have also come up in China since last year and the number of such companies that have disbursed loans of more than 1 million yuan each has crossed 10. Companies, such as Yindou, itouzi, jimubox, pccb and shicaidai, fall in this category, he said.

He said that P2P and P2B lending companies have made the lending process more efficient, and could pose long-term challenges to established lenders.

In the United States, the largest P2P lending company-Lending Club-filed an initial public offering application last month with the US Securities and Exchange Commission to raise $500 million.

As the P2P lending market further expands, funding costs will decline further, said Li Yaodong.

"Both the investment return rate for investors and financing costs for borrowers will decrease because of the expansion of the market. It will also make more funds available and improve financial capabilities of P2P lenders," he said.

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