Peer-to-peer (P2P) lending is a brand-new lending method, which promises to become a next generation bank, thanks to the application of advanced technologies supporting transactions.
P2P lending in Vietnam: Application of technology in finance
P2P lending is recognized as a highly potential market in the finance sector. In developed countries such as the UK or the US, the first P2P lending enterprise was established more than a decade ago. This technological trend has spread to the South East Asia region, and the P2P lending business is still growing rapidly.
In P2P lending, there are 3 interest groups, including: lenders, companies who own the technology (or P2P lending companies), and borrowers. When in need of a small, short-term loan, borrowers will connect to a suitable lender via the P2P lending app.
All 3 of the interest groups involved benefit from these transactions. For borrowers, they’re given the opportunity to access a new, fast and hassle-free lending method; for lenders, they can use their idle money reserve to earn more, and at the same time help those in need; as for the P2P lending companies, they earn a portion from transactional fees between the 2 parties.
Thanks to the application of technologies, lending transactions are taking place entirely online: fast, convenient, free of any intermediary procedures compared to the traditional method.
A good example would be the company Zopa in the UK — a P2P lending company established since 2005. At the moment, the company is ranked as the top 1 company with 1.3 billion USD in revenue from lending transactions, and 61 million USD in profit.
The potentials for growth in these P2P lending companies are tremendous, as shown in countries in the South East Asia region, including Vietnam. As of now, there is yet a complete legal corridor for this business, not to mention the bankruptcies of several P2P lending businesses in China, which may have worried people. However, when the nature of the P2P lending business is examined, we can recognize it as an eventual trend in the finance sector, which helps solve many problems in our society.
The humanitarian story behind Vietnamese P2P lending platforms
If we say that P2P lending is simply a method to connect those who are in need of money and those who have money in reserve, we are only looking at the tip of the iceberg. Behind it are tremendous humanitarian values that could only be revealed when further examined. For students who are struggling with tuition fees and rent, workers working in industrial zones or office workers with barely enough monthly income, the fact that they have access to a money reserve when they are in need, is, not to exaggerate, is nothing short of a life-saver. They — those who are struggling in our society (who are yet to be qualified to apply for credit cards, whose families and relatives are unable to support, and who would rather stay away from illegal lending) — are in need of a convenient, hassle-free lending platform like the P2P lending platforms.
With only 3 prerequisites: ID, smartphone and an ATM card, those who are in need may connect to thousands of others who have idle money via the P2P lending app. With a fair transactional fee (may be slightly higher than bank interest rate), borrowers are always willing to pay to gain access to such a new and convenient service. In Vietnam, there are even P2P lending companies such as Mofin that are willing to not charge any transactional fees for students to help them access the P2P lending technology more easily.
Why is Vietnamese P2P lending an eventual trend in the finance sector?
It solves the following problems (i) clunky banking systems: long procedures, high lending criteria, high management costs and time; (ii) illegal loans: high interests; P2P lending opens up a new, fast and convenient method to access capital, able to accommodate various needs of individuals who are not yet financially stable to cover them, thus allowing them to take loans first, and then pay later (in a short repayment period).
With P2P lending platforms, you only need a clear and innocent biography to be approved by the system. When you have successfully taken a loan, from the second loan and onwards, the money will be sent to you within 5 minutes — no different from a credit card in the 4.0 age.
With an increasing average income and increasing consumer demands, it becomes necessary to own a credit card for daily transactions. Whether or monthly wage is late, or you are visiting a relative or a friend and in need of money, P2P lending can always help you. It is not an exaggeration to claim that P2P lending is in itself a new generation bank that is fast, friendly, and highly advanced.
In Vietnam, the P2P lending business is growing rapidly. Looking at the number of P2P lending companies currently operating with millions of daily requests and credits, and an enormous amount of repayments, it is clear that this is an extremely potential market. Take Mofin for example: they have more than 500,000 users with hundreds of billions VNĐ being lent.
Mofin is one of the select few companies who are operating with the actual P2P lending model in Vietnam. They are focusing on creating a transparent meeting ground for investors as well as people looking for loans. What’s important is that they have an automatic and smart approval tool to stay on top of the process. As evidence, Mofin is currently using Big Data and UI in order to evaluate and understand their customers, generating a trusting score for every individual, which helps reduce risks, while at the same time building trust with both lenders and borrowers with their high-level security, since all of the information submitted will be encrypted with the latest blockchain technology.
The P2P lending model is playing a significant role to the finance sector in Vietnam. When technology is applied to financial services, these enterprises become an extended arm for many other official financial institutions: creating opportunities for small investors, while helping individuals with financial capacity to be approved via a more convenient and advanced tool. It is important that we recognize and support the P2P lending model, especially in risk management, in order to help stabilize the cash flows in our society, and improve the lives of those in need of short-term cash injections.