One of the main reasons for the 2008 financial crisis was due to banks giving a number of sub-prime loans. Sub-prime lending means giving loans to people who have difficulty in repaying and have a high probability of financial setback. In the current banking system, the banks are not risking their money. The risk is on the depositor and depositors have no information about the risky loans given by their respective banks. A solution to this problem is p2p lending.
P2P lending is a great way of mitigating these risky loans because it is completely up to the individual on how much to lend and assess the risk factor. The problem arises when there is a non-payment. By insuring the lender’s money, people have a new way of investing as well as borrowing money rather than relying on traditional banks.
P2P lending is a space where I feel fin-tech has the potential for huge growth. P2P is a great way of borrowing small loans as well as an additional source of income for lenders Currently, there are a few popular p2p lending services such as Lending club, Prosper, and upstart. In the coming years, I expect a number of p2p lending services with the possibility of having p2p lending apps which make p2p lending as seamless as a p2p transfer. The primary success factors are going to be ease of borrowing money, the interest rate for borrowers/lenders and the risk factor involved.
References :
Documentary called Inside Job —https://www.youtube.com/watch?v=bYm_oEO5iyE