- KredX Editorial Team
- 20 Jan 21
- business

Do you know the world's first marketplace lending, ZOPA, was founded in 2005 in the United Kingdom?
In its initial stage, the marketplace lending structure served as a platform, which facilitated contact between borrowers and lenders directly or through peer-to-peer.
Over the years, this type of lending system has undergone several changes and has evolved in terms of both size and functionality.
As per the latest data, in 2021, the transaction value in marketplace lending with regards to the consumer segment is expected to touch 14 million.
On that note, let us glance through the underlying concept of marketplace lending and how it has facilitated business borrowing experience over the years.
Marketplace Lending - A Brief Introduction
Fundamentally, marketplace lending is a non-banking financial institution-based funding source where businesses that need capital can raise funds directly from lenders. You must note that marketplace lending is based on a well-knit system with the following characteristics -- A Digital Platform – It is a software solution, which is open to users onboard.
- Multi-tenant – The system allows multiple parties to work on the application without being exposed to the risk of a data breach or privacy issues.
- Multiple Parties – It brings together multiple parties who have varying interests and end requirements. However, the number of parties involved is not necessarily limited to two.
How Does Marketplace Lending Work?
Ever wondered how banking institutions provide funds to borrowers? The entire business model of banking institutions is based on deposits and lending money to businesses and borrowers. However, when it comes to marketplace lending, the institutions neither take in any deposit nor lend money of their own. Instead, they serve as a platform, helping lenders match with borrowers directly. You should know that because marketplace lenders do not lend funds on their own, they do not earn any interest income. They also do not hold any capital to absorb losses. Are you wondering how they earn through an arrangement? Typically, these institutions generate earnings through fees and commissions they levy on the borrowers and lenders.A Walk Through The Salient Features
These are among the most vital features of marketplace lending –-
A Single Platform
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Parties Involved
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Earnings
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Risk Evaluation
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Transparency