According to a recent paper released by the Asian Development Bank (ADB), Malaysians’ investments in peer-to-peer (P2P) lending platforms are primarily driven by trust. These P2P lending solutions have been growing all around the world and Malaysia is not falling behind.
According to the report released by ADB, there has been a massive growth of P2P lending platforms, which is expected to grow to almost $900 billion in 2024. In addition to it, these new solutions have already disrupted traditional banking activities.
P2P Lending is a crowdfunding process that allows individuals to have access to alternative financing borrowers. Small and Medium Enterprises (SMEs) are those that can be most benefited by P2P lending platforms.
ADB wants to understand why individuals are moving towards P2P lending platforms and why they are investing in them. One of the reasons why this is happening is related to trust, among other factors.
It is also worth mentioning that P2P lending investors are generally young individuals that have been attracted by the low-cost operations these firms have and how these companies operate through the internet. Traditional financial institutions tend to have higher costs and more troublesome regulations and processes.
According to the report, full access to borrowers’ online information such as photo, age, gender and other data helps to enhance trust. Thus, this shows the higher the users’ trust level, the higher their trust in the P2P lending platform.
There are other reasons why users seem attracted to these new P2P lending platforms. The ease of using a service is also very important in a world in which processes and activities have become faster and much easier to be performed.
ADB’s research paper reads as follows:
“An online P2P platform should be designed in such a way that it is flexible and convenient, where the users are able to search for information and be well informed about the main activities of the fund-raisers.”
They explain this is vital for the customer that is using the platform. An easy to use interface and system would minimize the feat of loss or the psychological burden.
Furthermore, security is also a key factor in understanding why users prefer to use P2P lending platforms. Security risks should be eliminated by these financial institutions. The services should focus on safety in terms of the inflow and management of cash.
Companies that offer ambiguous information about their services and how they operate tend to be less trusted by investors. This ultimately affects the firms interested in offering services to the market.
Moreover, the use of online platforms should be accompanied by additional security measures that would allow users to feel they are being protected. For example, these firms should offer SMS services, proof of confirmation and more.
Investments in P2P lending platforms are driven mostly by trust and security, as the report shows. ADB considers P2P lending advocates and regulators should make an effort for increasing their market presence and help users understand how these platforms work.
Some of the things they can do include seminars, roadshows and conferences. This could eventually help marketing the benefits of these decentralized P2P lending firms.