Elending

Elending, short for electronic lending, refers to the provision of credit through digitally enabled platforms that connect borrowers with lenders. It covers consumer loans, small-business loans, and other credit products offered via online marketplaces, mobile apps, and other electronic channels. Platforms typically perform automated credit assessment, combining traditional credit data with alternative indicators, and offer funding from individuals, institutions, or investment funds, often through pooled loans or securitized notes.

The process involves online applications, where platforms use algorithms and data analytics to assess risk and determine pricing. Lenders select loans to fund, or funds are allocated through automated investment options. Borrowers receive funds quickly, and repayments are collected electronically. Platforms may offer refinancing, collections services, and secondary markets for selling notes. Fees and interest rates reflect credit risk, platform costs, and regulatory requirements.

Regulation and risk: Regulatory oversight varies by jurisdiction but commonly includes consumer protection, licensing, anti-money laundering (AML) and know-your-customer (KYC) requirements, and data privacy rules. Risks include credit risk, fraud, cyber risk, liquidity risk, and the potential for over-indebtedness. Benefits include faster access to credit, transparent terms, and greater inclusion for underserved borrowers; drawbacks include higher effective interest rates in some markets and dependency on platform health.

History and scope: Electronic lending emerged in the 2000s with early platforms that connected borrowers to individual or institutional investors. Notable examples include Zopa and Prosper in the mid-2000s, LendingClub in the United States, and later platforms such as Funding Circle and Upstart. The market has expanded globally, with banks and fintech firms increasingly offering online lending alongside traditional channels.

See also: fintech, online lending, peer-to-peer lending.