Is the title peer-to-peer misleading now?
The basic concept that peer-to-peer lending was based on – that individuals that want to borrow are matched by an online service provider, for a small percentage of the interest payable on the loan, to individuals that want to lend. But as the industry grows is this still the case?
In America where the two major players in the sector, Lending Club and Prosper, are based, P2P websites are moving away from individual investors and relying more and more on institutional investment. Lending Club’s CEO Renaud Laplanche quotes that as much as two-thirds of loans are now coming from institutional investors such as insurers and sovereign-wealth funds. In fact Mr Laplanche says,
“We haven’t used the term ‘peer to peer’ for the past three years, just like Facebook doesn’t call itself a social network”.
Instead, according to their website, Lending Club is an ‘online financial community bringing together investors and creditworthy borrowers so that both can benefit financially’.
Institutions are interested in investing as in the long-term they will be able to offer their new customers from P2P lending more financial products.
However, peer-to-peer lending sites are keen to stress that borrowers still like the idea of being lent to by another individual so this will remain an important part of their business models in the future. And that the increase in institutional investment is only a good thing. The flow of capital into their funds will ensure affordable rates for borrowers and increase liquidity.
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