Loans

The disappearance of peer-to-peer loans has a moral

The disappearance of peer-to-peer loans has a moral
Written by Publishing Team

Zopa, backed by SoftBank, and LendingClub, which is valued at $3 billion, are some of the companies that allow individuals to lend directly to small and medium businesses or consumers. By cutting out expensive bank branches, they hoped to offer investors higher rates, while giving borrowers quick, competitive loans. Individuals pumped over 1 billion people annually onto LendingClub in 2015-2017. But after buying a bank in 2020, the US group no longer accepts retail money between individuals. British company Zopa will also focus on banking.

While the pandemic hasn’t helped, institutions have already begun exchanging retail cash on some platforms. Attracting people requires expensive advertising, and customers can only invest a few thousand dollars at a time. hedge funds Insurers often sign multi-million dollar loan agreements.

Then there are the regulators. After LendingClub’s purchase of a bank, they said it should hold capital against P2P (peer-to-peer) loans even after passing exposure to investors. This wiped out profitability. Zoba’s lenders had to pass knowledge tests, but few passed them. lesson for financial technology, Especially cryptocurrencies, regulators can make life difficult for companies trying to create a new asset class.

Remember, too, that beating the banks is tough. P2P pioneers assumed they would end up matching their financing costs. That was always difficult. Since banks finance most of their balance sheets with deposits, their overall costs are very low. Instead, Zooba’s lenders charge 4%. This is important for companies like Affirm and Afterpay, which rely on wholesale funding. When interest rates rise, these costs tend to rise faster than deposit rates, allowing lenders to fight back with their installment loans. It is possible to create stylish websites; Another thing is that loans are cheaper.

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