As technology keeps improving, so do many industries – including the finance industry. There are now financial companies that heavily utilize digital technology for their business models and operations. People have a term for these companies: FinTech (financial technology). One of the most popular business models born of FinTech is peer-to-peer (P2P) financing, which matches issuers and small businesses with investors via an online platform without going through traditional intermediaries like banks and other financial institutions.
The concept of P2P financing was first created and utilized in the UK in 2005, but now it has spread globally, including to Asia.
Began with a Mix of Online and Offline Models
In the US and the UK, P2P financing is predominantly an online model. When P2P financing started gaining traction in Asia, the majority of P2P providers worked with a mix of online and offline models. Lack of data availability and low Internet penetration increased the challenges of P2P financing taking hold in Asia. But in the last few years, a new set of completely online P2P providers emerged. They use behavioral data from social media, acquire data through partnerships, and use innovative technology-based credit scoring methods.
China Leads the Pack
According to the World Economic Forum, China currently holds the record for most P2P financing volume disbursed in the world, with total funding distribution reaching USD 40 billion in 2014. The development of P2P financing in China has outpaced the USA and the UK, with USD 9 billion and USD 5 billion funded via P2P financing respectively.
Singapore Leads the Southeast Asian Market
Let’s take a closer look at P2P financing in Southeast Asia. P2P platforms are sprouting in different Southeast Asian countries, including Malaysia, Singapore, Indonesia, and Thailand. Right now, Singapore is dominating the region’s P2P financing market.
How About Malaysia?
Meanwhile, in Malaysia, the regulation of P2P financing is distilled within the Capital Markets and Services Bill (CMSB). The bill specifies that individual investors are very welcome to participate in P2P financing, so long as they don’t exceed more than RM 50,000 per year. All in all, P2P financing, with its offers of high-return, safe investments and fast working capital for local SMEs, seems to have a bright future in Malaysia.
The outlook of P2P financing in Asia is bright; it will continue to bring the finance industry in new, technology-driven places. You can participate in P2P financing as investor, as issuer, and sometimes even both! The concept is profitable for business growth and personal finances.