BitLendingClub Deep Insight Series: How P2P Lending Helps Mainstream Bitcoin Adoption

Bitcoin Powers Global Lending!

Many within the Bitcoin community are still wondering what will be the next killer app that’s going to bring Bitcoin to the mainstream. I can’t say that marketplace lending will be that killer app, but it certainly looks like it has the potential to help a lot of people. Over the past year we’ve observed the risks associated with lending Bitcoin and it’s been an uphill battle. The community went from lending on bitcointalk.org, then a handful of marketplace lenders came in to help the community. VCs have backed some of those marketplaces and a number of others have sprung up in the process. But lenders are still trying to shake off the troubles of the early days, when scams were abundant and risk was difficult to manage. We’re now seeing an extremely promising pattern within marketplace lending, which will make lending a critical part of Bitcoin’s mainstream adoption.

Measure Success

So exactly how viable is marketplace lending? If we’re going to answer that question, then we have to have a solid basis for comparison and what’s more solid than Lending Club? Lending Club came on the scene in 2007 and it certainly didn’t start out as successful as it is today, quite the contrary.

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Lending Club Since 2007

Vintage ROI Loss Loans Volume
2007 -3.44% 14.81% 603.00 $4,791,550.00
2008 -0.27% 11.83% 2,393.00 $19,975,025.00
2009 4.57% 7.40% 5,281.00 $51,814,750.00
2010 6.09% 5.86% 12,537.00 $126,351,175.00
2011 6.26% 6.65% 21,721.00 $257,363,650.00
2012 6.71% 7.40% 53,367.00 $717,942,625.00

BitLendingClub Since May 2014

Vintage ROI Loss Loans Volume
Last 12 Months -5.2% 15.68% 5840 $4,416,589.90
Last 3 Months -1.60% 7.07% 1455 $943,653.18

Data sources: https://www.nsrplatform.com/ and https://bitlendingclub.com/stats

It’s very important to note that we can be certain these statistics are accurate, because Bitcoin loans reach maturity a lot sooner than loans in the fiat marketplaces. The average term on a Bitcoin loan is 30 days, and all payments are due no later than 30 days after the loan is started. This means that each loan is guaranteed to reach first payment maturity within 30 days (even if it’s a 6 month loan). An estimated 80% of the loans have become delinquent on the first payment. Of the 20% that are have become delinquent after the first payment, about 60% are fully repaid eventually.

It took Lending Club over 3 years to bring down the default rate to 7%, to have over 5000 loans per year. Within the first year of operation, BitLendingClub was able to nearly match Lending Club’s first year volume and default rate. Within the last 3 months, we’ve been able to improve the loan performance to the same levels as Lending Club’s 3rd year. The above statistics point to three significant facts:

  1. Bitcoin makes it possible to service a larger number of loans in a shorter period of time.
  2. The increased number of loans provides more data points, which help bring down default rates quicker.
  3. The lack of obstructive regulation allows businesses to provide consumers, from over 120 countries, with the benefits of an efficient lending marketplace.

All of this has been happening, while the BitLenidngClub has grown from 35% market share to 40% market share. So there was no significant sacrifice of consumer safety or economic growth needed to achieve this success.

Prevention vs Collection

These statistics are significant, because the general view of marketplace lending amongst the incumbents is that it can only work if we have collection and reporting agencies to punish defaults. However, neither Lending Club, nor any of its competitors became successful, because they were able to collect on defaults. On the contrary, they became successful, because they were able to prevent defaults. Over 90% of the applicants that request a loan on Lending Club are actually rejected [1].

The marketplace lending space in Bitcoin works quite similarly. However, there are some differences: there are no credit rating agencies and with the borrowers coming from over 70 different countries, most of the data doesn’t even exist for them. The power of Bitcoin is that it allows the marketplace to become that credit rating agency. Borrowers are allowed to build up credit history over time and progressively get access to better credit opportunities.

Why Does it Matter?

A lot of people might be wondering why this matters and the most surprising reason is that despite what we’ve heard in the news, Bitcoin can offer more financial stability. Venezuela’s currency recently dropped in value by more than 50% [2], and in the face of such economic hardship, people from Venezuela are increasingly turning to Bitcoin. At BitLendingClub we’ve had first-hand experience with that fact: Venezuela is #5 by loan volume and it has one of the lowest default rates per any country[3]. The default rate, of 0.47%, is orders of magnitude lower than the average default rate of 7.07% on our platform. With over 373 loans totaling at $189,365.97 USD, the borrowers of Venezuela have shown that despite enduring harsh economic conditions within their country, they have managed to find resilience and economic stability through Bitocoin!

The Big Picture

While looking at the data is helpful, it’s also important to keep the big picture in mind. Yes, marketplace lending is quite small today, but we’ve been able to match and outperform the first-year achievements of the market leader in the space, Lending Club. There were $8.8 billion USD in loans originated in online platforms within the last year, but the global market opportunity is over $1 trillion. And while Bitcoin is the currency that allows us to facilitate these loans, we’re not just restricted to Bitcoin loans, so that $1 trillion dollar market is wide open for us. The borrowers can already request loans in over 10 different fiat currencies, not just Bitcoin. Indeed, future of Bitcoin-powered marketplace lending is a lot more mainstream, than just servicing the needs of the Bitcoin community. Bitcoin allows us to service any loan, in any country and in any currency which is publicly tradable for Bitcoin. This allows marketplaces to reach global mainstream users by using Bitcoin as the value transfer protocol, and providing a seamless experience for lenders from all over the world!

[1] “Rejected Loans on LendingClub – The Post-IPO Edition” http://www.orchardplatform.com/blog/rejected-loans-on-lendingclub-the-post-ipo-edition/

[2] “Currency tumbles as worried Venezuelans look to swap bolivars for dollars on black market” http://www.foxnews.com/world/2015/05/22/currency-tumbles-as-worried-venezuelans-look-to-swap-bolivars-for-dollars-on/

[3] “BitLendingClub Deep Insight Series: Defaults By Country” https://blog.bitlendingclub.com/bitlendingclub-deep-insight-series-defaults-by-country/

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