Ever since the alternative personal financing industry rose out of the ashes of the 2007/8 recession, many have been quick to condemn it. While it may be true that alternative financing sector has seen its share of bad business models and sleazy predatory lenders, all indications suggest that alternative financing as a practice is here to stay.
Why Alternative Financing is Still Fighting for Legitimacy
The alternative financing industry has gotten a lot of bad press- not all of it deserved. As the industry has emerged, a significant amount of attention has been placed on the most marginal, worst case scenarios without emphasizing the trajectory and scope of the sector as a whole. Plenty of articles have been published about people with extremely bad credit or risky business ideas who are taking out high interest payday loans and cash advances to cover daily expenses.
Plus, we can’t ignore the fact that there is little government regulation over the industry, and unfortunately, a few companies have tried to take advantage of that gap.
While these cases exist, at the same time it isn’t representative of the industry at large. The number of legitimate alternative personal financing companies and platforms far outnumber the bad apples, and countless people have happily used these products to consolidate debt, build a business, renovate their home, or pay for a special occasion.
Alternative Personal Finance Revisited
But, you don’t have to take our word for it. Here are three good reasons why no one should be so quick to discount alternative personal financing:
- Alternative personal finance is a big industry. Big is really an understatement. In fact, some sectors are experiencing explosive growth. Peer-to-peer lending, for example, is expected to reach $290 billions by 2020, at an average growth rate of 51% per year. Plus, over the past few years the alternative personal financing industry has evolved into an amorphous entity. There are countless products on the market, including personal micro loans, p2p loans, business cash advances, payday loans, as well as secured loans. Even within each product there are alternative lenders targeting various different types of borrowers. Some will work only with those who have good credit; others target high risk borrowers.
- It’s fulfilling a need that the banks are ignoring. While the alternative finance industry existed prior to the recession, it got a big boost in growth and interest after traditional banking institutions stopped lending to most consumers and small businesses. Then there are those outside of the banking system who are still in need of financial services. According to recent statistics from the FDIC, almost one-third of the U.S. Population, or 106 million people, are either under-banked or unbanked.
- It’s no longer shiny and new. When executives from traditional financial institutions start jumping on the bandwagon as board members, lenders and investors in alternative financing companies, then that tells you something. Not only is the alternative financing model slowly becoming more mainstream, but in some cases traditional financial institutions have begun to compete with these companies outright.
Then, there are big online companies, such as PayPal, Amazon, and Affirm, that have partnered with banks to offer instant credit and micro loan services to their customers. Chinese eCommerce giant Alibaba, also has its own an e-Credit Line, allowing U.S. buyers to borrow up to $300,000 per purchase at competitive interest rates.
Bottom line: alternative personal financing is not the boogey man, it’s a serious business, and it promises to forever change the way we borrow and invest money.