logo
Beyond HumanBig PictureCatalystsConnected WorldExchangeMarketing MixNew MoneyNew SchoolPeople SciencePulse

Is the alternative lending bubble about to burst?

Avatar

As alternative lenders scramble to get their share of the market, CEO of Borro, Paul Aitken, reminds them that as with any bubble, it bursts.

A lot can change in 15 years.

The world’s rural population are heading to cities; Internet usage has increased 10 fold, China’s power consumption by 4 fold and cell phone users worldwide have reached 4.88 billion.

It makes the year 2000 seem like a different place. One where hindsight shows the immaturity of tech businesses who rode that newly formed Internet wave.

It was meant to signal a historic shift to the halcyon days of a new millennium, but instead, greed saw things come to an abrupt halt.

The NASDAQ topped out at 5,000 on March 10, 2000. The economy was in free-fall. Companies folded. Fortunes were lost. The bubble had burst.

It showed that as with any newly formed industry, there stands the potential for failure.

Pauk Aitken, CEO of lending platform Borro believes the same could be happening with the alternative lending industry.

Aitken predicts that alternative lending platforms will soon be faced with a bubble, and “as with any bubble, it pops.”

It comes down to the increased number of alternative lending platforms that have emerged in recent years. A 2014 report by the University Of Cambridge cited that P2P business lending and P2P consumer lending had increased dramatically, up 250% and 108% respectively.

The potential bubble is a result of the “lending landscape chasing the same client. There’s a finite amount of people who are prepared to deal with an alternative lending platform.”

The lending bubble is also due to “more competition” which “equals a higher cost of acquisition.”

And having to work harder for new customers could lead some lenders to cut corners.

“At some point someone is going to lend a significant amount of money to people that they just shouldn’t be lending to. It’s going to cause a problem for everyone else. It is natural.”

Once this does, Aitken believes that it is “inevitable” that the “market is going to calibrate itself.”

CHANNELS