Peer to peer banking

I haven’t written about these new person to person banking exchanges before, but a recent article in the Economist is as good an excuse as any.

Zopa in the UK and the new Prosper Marketplace in the US are variations on the eBay/Betfair person-to-person business model focussed on lending and borrowing. Zopa likens their business to microfinance only using the internet to create the networks of lenders and syndication of risk needed to make this a viable and attractive proposition. Interestingly on Zopa, you can only lend (I imagine borrow as well but haven’t read the terms) if you are not a “a credit broker or lend money to other persons in the course of any business. “ I can imagine where this idea came from but over time I wonder why an exchange would want to limit or restrict the types of participants on them. Indeed, institutional players can be key liquidity providers with the long tail of individuals setting the marginal price. Betfair is a lot more robust as a marketplace for instance for having a heterogeneous base of users.

Zopa do a very interesting market update however.

Prosper Marketplace has added an additional angle which is to allow customers to form groups of affiliated borrowers that can (in theory) harness their collective trust / reliability to achieve lower borrowing rates – similar to the idea of the traditional credit union or the more modern social network (a la Friendster or LinkedIn.)

It will be interesting to see how these networks develop, but weaved into the tissue of the connected web, it is possible to imagine a day when such exchanges become ubiquitous and the preferred method of dynamically managing credit for millions or billions of users – retail and wholesale – around the world. Clearly there are many many obstacles to overcome but imagine the day when a hedge fund can trade on Betfair using leverage provided by Zopa using PayPal as a payments system…all dynamically managed in real time.

Tweet This Post

Permalink||Comments|Filed under 'Banking, Sixth Paradigm'