The Current and Potential Size of the P2P Sector in Australia - Case Study Example

Student’s Name: Instructor’s Name: Course Code & Name: Date of Submission: Words: 1,578 Table of Contents Introduction 1 The Current and Potential Size of the P2P Sector in Australia 1 Evidence of Segmentation 5 Degree of Market Competition by Segment 7 Reference: 9 Introduction The I.Finance Company is a Fin Tech, a major player in economic sector. The company deals with the use of technology to improve efficiency of financial services. The I.Finance platform provides an avenue of peer to peer lending. The emergence of financial technology acts as disruptive mechanism in the world’s financial system. The technology has received great acceptance across the world due to its low cost, efficiency and reliability. Also, it is considered convenient since traders can make payment to other traders irrespective of geographical distance. The report provides in-depth analysis of the market status of P2P in Australia. The Current and Potential Size of the P2P Sector in Australia The Fin Tech Company has successfully created a disruptive effect in the financial system in the economic sector. The peer-to-peer sector has increased drastically due to market acceptance and benefits compared to traditional modes. The Australian market has more than 50 peer-to-peer companies who are actively playing in various market segments (P2p-banking.com, n.d.). The primary function of P2P is achieving efficiency by use of technology. The investors have great confidence in financing Fin Tech incubators and start-ups showing great potential in the sector. The majority of P2P Companies sells products and services which are not in existence since they link the buyer and seller of the products. Therefore, valuing such company proves difficult since they only rely on the technology as their main asset. For example, Uber Company provides taxi services but does not own any taxi. Thus, investing in such company proves tricky since it has few or no tangle assets unlike other contemporary companies (Xu et al., 2015). The analysis of companies below shows a clear indication of investor confidence on current performance and potentiality of P2P sector in Australia; Societyone Company The company is a major P2P player in Australia and it links investors with creditworthy borrowers. It was founded in 2011 by Matt Symons & Greg Symons. The company net assets are estimated to be $2.5Million by the year end 2014 (P2p-banking.com, n.d.). The founders’ enthusiasm in developing P2P lending platform was created by models that were used in US and UK. Therefore, I-Finance Company need to benchmark with US and UK companies to establish current and future potentiality of the sector. The company has raised high amount cash from investors which are then disbursed to creditworthy borrowers. In 2014, Reinventure owned by Westpac invested in the company boosting its finance pool available for borrowing. Also, the company announced that it completed its finance goal by raising $25Million which was received from its existing shareholders. Consequently, the company under leadership of Jason Yetto is optimistic that it will meet its $100Million goal to meet the rising borrowers’ needs (P2p-banking.com, n.d.). The management projects increase in market size due to the efficiency of P2P lending platform. In addition, the company purports that the number of defaulters has decreased drastically due to increased sharing of credit information of the borrowers and other dynamic security measures adopted in the industry. Harmoney Company The company was founded in 2014 and has received immense success in P2P sector. The company focuses on lending and operates in New Zealand and Australia. The company has aided loans of more than $200Milllion since its inception 20 Months ago. Consequently, the company completed its highest loan raised under Series B shares for US and UK based P2P Global Investments PLC (P2PGI). The amount solicited amounts to $8.5Million which totals Harmoney investment in P2PGI at $109Million (P2p-banking.com, n.d.). The investment of such value and total loans advanced shows that the existing market is large and it keeps growing. The evidence on the demand and investor confidence on Harmoney Company warrants I.Finance Company to take its expansion move seriously to ensure that it captures the available market niche before other Fin Tech Companies capitalize on that opportunity. MoneyPlace Company MoneyPlace Company is fully registered P2P lender operating in Australia based in Melbourne. The company provides loans of between $5000-35000. The recent strategic relationship with Auswide Bank boosts the confidence in the current and future path taken by P2P sector in the economic industry (P2p-banking.com, n.d.). The bank has provided huge financial support to MoneyPlace under a contract that will last for five years. The bank promised to provide funds of up to $60Million under the five year strategic relationship. The funds are aimed at growing MoneyPlace consumer base and also as a move to diversify bank’s financial services and improve its profitability amid rising competition in the banking sector. The relationship shows a great potential of traditional banking merging to P2P companies providing financial services. The merger will cut across all industries that P2P model applies in the economy. The merging of provides large economies of scales thus reducing cost and increasing profitability of both P2P companies and traditional ways of buying and selling products or services. Therefore, I.Finance expansion will provide a great opportunity to be spotted by potential investors who have great market share or high customer convincing power thus enabling it to achieve huge demand upon merger or strategic partnership in future. The investors’ confidence provides evidence of bright future ahead for the P2P players in the market. Also, the current number of strategic partnership of P2P and traditional companies acts as a positive signal of great success in P2P sector (Xu et al., 2015). The growth noticed from the above companies shows that the market is still growing at a faster rate. The new or growing market has great advantage for new entrance and growth of new companies since it has little or no monopoly by few companies (Birn and Forsyth, 2002). Besides, new or growing market potential customers have no or little knowledge about the product or services (Birn and Forsyth, 2002). Therefore, P2P companies are expected to educate the potential customers, sell to them the service or product to try it out and aims to increase repeat purchase and improve their trust to the company. The evidence shows that a great proportion of Australian market is still growing. Thus, I.Finance should expand operations considering the fact that other companies in the same industry are expanding, creating and maintain their market share. Also, investors have great appetite in investing in P2P sector thus ease in raising capital for expansion (Xu et al., 2015). Evidence of Segmentation The P2P sector is dynamic in terms of market segmentation. The innovators keep devising new disruptive ideas in diverse sectors of economy. The market of P2P lending has four define market segments based on loan need, financial ability and business sector of borrower (Du, 2014). The market segments entail consumers, students, small business and real estates. The number of overall loans issued under each segment for all P2P lending companies is summarized in figure 1. Student Loans Segment The student loan segment has a higher proportion of P2P loan consumer (35%). The rate of loan uptake is attributed to spontaneous nature of financial needs of a student. Also, students require small amount of loan instantly with few procedures in obtaining the loan. Therefore, P2P lending platform solves the problem due to its characteristics. Consumer Loans Segment The consumer loan segment shows higher consumption (30%) after students’ loan segment. The consumers borrow loans to meet the shortfall available cash for spending and bridging gap from period of shortfall to the next salary date. The cash set aside for transactional and precautionary motive may fall short due to changes in normal spending conditions (Birn and Forsyth, 2002). Therefore, consumers resort to borrowing from P2P lending companies which provide loans with few requirements and interest. Small Business Loan Segment The small loan segment has the second lowest uptake of 18%. The research shows that small business holders fear financial obligation and lack of adequate knowledge of P2P lending platform. The P2P companies avoid the market segment since they take loans of small amounts paid in a shorter period thus lower income (Du, 2014). Real Estate Loans Segment The real estate loan segment records lowest uptake of P2P lending services at 17% of the entire market. The analysis shows that real estate borrowers requires huge amount of loan and recoverable at a longer period of time which limits lending abilities of small P2P companies with limited pool of investors (Du, 2014). Therefore, only few companies such as Realty Mogul and SoFi who has high valued investors provide mortgages to real estate customers. Degree of Market Competition by Segment The degree of market competition majorly depends on loan uptake and ability of the firm to meet borrowers’ needs. Segment Competition degree Reason Students Loan High -Large customer base -High customer awareness of P2P -Shorter repayment period -High tendency recurrent and urgent financial need of students’ expenditure Consumer loan High -Large customer base -The urgent nature of financial need and presence of gap between salary periods for employed customers. -Shorter repayment period since they are small loans. Small business Low -Small and little awareness in the small business market. -Low income since they are small loans repaid in a shorter period. Real estate loan Low -Small customer base -Lack of enough capital base to finance real estate venture and keep the business running. Therefore, I.Finance should capitalize in creating P2P lending awareness for small business since it has lower competition and loan uptake. Also, I.Finance can create funding strategic relationship with big firms to enable the company to meet real estate needs since it has few players (DU, 2014). Reference: Birn, R. and Forsyth, P. (2002). Market research. Oxford, U.K.: Capstone Pub. Du, Y. (2014). Risks and Management of P2P Online Lending. AMR, 926-930, pp.3950-3953. P2p-banking.com, (n.d.). Australia | P2P-Banking.com. [online] P2p-banking.com. Available at: http://www.p2p-banking.com/category/countries/australia/ [Accessed 12 May 2016]. Xu, Y., Luo, C., Chen, D. and Zheng, H. (2015). What Influences the Market Outcome of Online P2P Lending Marketplace?. Journal of Global Information Management, 23(3), pp.23-40. Read More