Legal and Regulatory Aspects
Edited by Iris H.-Y. Chiu and Iain G. MacNeil
Chapter 10: Out of the shadow? Promises and challenges of peer-to-peer lending
The traditional banking industry’s business model is fairly simple: take the deposits from borrowers (supplier of funds) and then act as lenders to those who need the funds (demand side of funds). Banks serve many important roles in that process, and are also able to generate excellent returns for their activities. Peer-to-peer (P2P) lending represents one of the most fascinating challenges to the traditional banking industry in a very long time. With the growth of Internet and information technologies, in the middle of the 2000s many P2P lending startups emerged around the world. Some of the most notable examples include Prosper.com in the US and Zopa.com in the UK. They started to link borrowers and lenders of funds directly, rather than having them go through banks. The borrowers on these platforms can be individuals or firms. Most platforms, including Prosper.com and Zopa.com, focus on individual borrowers. Other platforms cater to the debt financing needs of businesses, particularly small and median businesses. Examples include ThinCats.com and FundingCircle.com in the UK. Early on, most of the lenders on these platforms are individuals as well.
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