Peer to peer lending sites were one of the earliest exponents of the social or sharing economy. They give people the opportunity to lend money to other individuals, usually earning significantly better returns than they would get from their bank of choice.
The industry evolved out of the micro-finance market and rapidly grew as you could back all manner of people or projects.
This peer to peer approach to business was rapidly copied by everyone from AirBnB to Uber, as the sharing economy blossomed under the promise of cutting out middle men and allowing us to trade directly with one another.
The peer to peer lending market has been particularly successful, with estimates that it will deliver some £2.5 billion in loans this year. Of course, this is still a small fraction of the £170 billion lent as a whole, but it’s a swiftly expanding fraction.
With no less a figure than Andrew Haldane, of the Bank of England, suggesting that there may come a time before too long when banks themselves become redundant, it is perhaps not surprising that the industry is dipping its toe into the water.
Goldman Sachs suggested recently that they may be about to invest in p2p platform Aztec Money. Will it be long before others follow suit?
After all, it’s estimated that some 80% of the money lent via Prosper and LendingClub is actually from institutions rather than individuals.
So it’s increasingly the case that the p2p market is less about individuals at all, but more a case of borrowing from the same people you would if you went to a bank.
All of which makes plenty of sense for a bank. After all, it means that they don’t have to worry about large overheads, nor indeed need to invest in old, legacy IT systems. The p2p platforms assess the credit risk for them, often using much broader data than is used by the credit agencies when constructing a risk profile of a borrower.
The interesting thing will be to monitor these moves and see whether it is merely an experimental investment or whether big finance will increasingly take a hold over the p2p lending market.
Could this institutional invasion afflict other sharing economy platforms? It’s hard to see the big hotel chains investing heavily into AirBnB, for most of the time they try and establish their brand as the anti-AirBnB, with its predictable service and reliable reputation.
That isn’t stopping companies sitting up and taking notice however. The likes of Crowd Companies have been established to provide advice and support to companies looking to adapt to the sharing economy.
We’ve also seen the likes of Avis make a hefty investment into Zipcar, whilst GE have been substantial backers of the Quirky inventors community.
It’s increasingly likely that companies will turn to the sharing economy to monetize excess or idle inventory, whilst also serving untapped market segments at the same time.
It’s inevitable that incumbent players will not stand idly by and watch their market get eroded by sharing economy start-ups. It seems inevitable therefore that big companies will turn to these platforms to diversify their revenue or build new relationships with customers.
How this will play out is hard to gauge, but one thing that does seem certain is that we cannot take for granted that we’ll be dealing with another individual when we trade via the sharing economy any longer.