Online lending has come a long way from its initially sketchy reputation.
The first company in the space was London-based Zopa, which launched in 2005 and has since lent over £900 million.1 It is still Europe's largest marketplace lending service.
Two San Francisco based startups followed, Prosper and Lending Club. The former started in 2006 as the first peer-to-peer lending market place in the US. It now boasts over 2 million members and over $4 billion in funded loans.2 Lending Club launched in 2007 and has since facilitated more than $9 billion in loans.3 Authors Karen Gordon Mills and Brayden McCarthy point out that the outstanding portfolio balance of alternative online lenders is still comparatively small; the bank credit market is nearly 70 times its size. 4 Nevertheless, author Charles Moldow predicts a bright future for the sector: $1 trillion in loans originated globally by marketplace lending platforms by 2025.5Despite their scale, online lenders and the technology they use is fundamentally changing the ways in which small businesses access capital. The new platforms create efficiencies, greater competition, and price transparency, and they make small business lending more profitable than established bank credit. Banks have been waiting on the sidelines while emerging online players are filling the technology gap between established financial services and market demands. Marketplace lenders are pushing innovation within the credit sector in the same ways in which other online platforms such as Amazon.com changed retail and the book trade and iTunes changed the music industry.
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