Peer-to-Peer lending vs banks: Could P2P kill off an industry?
The question of peer to peer lending vs banks is one that is going to become increasingly important in the years to come. With a growing number of platforms offering the same functions as banks in a more accessible and affordable form, it should be no surprise that many think the death of traditional banking is coming. Here’s why P2P could be giving the banks a run for their money.
In early 2020, American P2P pioneer, LendingClub, announced the first-ever fintech takeover of a bank when they purchased Boston-based Radius Bancorp for a reported $185 million.
This purchase is the first of its kind but it’s probably not the last.
As online P2P platforms built for convenience and higher profit margins for customers advance, traditional financial institutions like banks are becoming sluggish and redundant.
So why is peer to peer lending bringing bank lending to its knees and what final impact will peer to peer lending have on banks? We’re going to talk about how P2P kicked off and where it’s going. Once you’ve finished reading, you’ll never look at your checking account provider in the same way again!
P2P lending vs traditional banking
P2P platforms are fintech companies operating online and allowing borrowers to easily access capital directly from lenders instead of relying on a third party like a bank.
The emergence of P2P lending blind-sighted most of us. Almost unheard of before 2005, subsequent economic downturns have shot the platforms into prominence today.
Why P2P platforms emerged
For years, banks practically had a monopoly over financial products. Few other institutions had the decades of accumulated capital or government support to keep up.
Because of their dominance in the industry, banks have increasingly been able to squeeze out as much profit as possible and remove risks to their bottom lines. As economies dived in 2008 and 2020 respectively, instead of working to get capital moving most banks clammed up. Giving out fewer loans to borrowers and offering lower interest rates to investors.
It was only a matter of time before an alternative came along.
P2P companies were created to offer much of the same functions as banks but in a much more accessible, affordable way — and with some added features.
The rise of P2P in developing countries
Most people associate P2P lending with fintech capitals like London, but it’s developing countries in Asia, Eastern Europe, South America, and Africa that may reap the most benefits from fintech (and see the most growth).
According to Forbes, around two billion people across the world don’t have access to a bank — most of them live in rural, unconnected areas or countries with poor banking infrastructure.
Due to the unstable economies and greater government capital controls in these regions, people struggle to find a reliable savings account, access a loan when they need it the most, or find good investment opportunities. Capital and development are often brought to a standstill.
How P2P solves the problem
Instead of waiting for a bank to fill the gap, P2P companies bring supply and demand together for regions that need more money. Individuals in capital-rich areas can directly lend money to those looking for a loan. The simple online format of P2P platforms makes them accessible to anyone with an internet connection. No need to go into a city to look for a bank.
Recently P2P platforms have even moved into cryptocurrency loans making them even more useful for developing countries.
Cryptocurrencies let people hold their savings in a more stable option than some inflationary local currencies. They’re also borderless and all transactions take place anonymously online so nobody is excluded.
It’s not hard to see why the impact of peer to peer lending on banks could be severe.
When it comes to P2P lending vs traditional lending, we might not be kissing goodbye to banks completely for a while. But if you want to start testing the waters of the industry that may change everything, there are quite a few P2P marketplaces to choose from today.
While some platforms like LendingClub take a more traditional route towards change, others are actively embracing tech to give investors and borrowers the best and brightest new features on the market.
Get started with P2P the right way with MyConstant
At MyConstant, we use crypto collateral requirements instead of credit checks to decide who can borrow from us. This makes our loans more accessible to a wider range of people while also protecting investors.
If you’re looking to invest but still want access to your money, you can sign up for a Flex account. Earn 4% interest with unlimited anytime withdrawals, all while having the security collateral offers.
If you’re willing to take greater risks to earn more, you could also consider our other investment options. You can earn up to 7% APR through our crypto-backed lending. All loans are over 150% backed by collateral so you don’t need to spend your time worrying about defaults.
If you need a loan, our crypto-backed loans take away the exploitative intermediary fees charged by banks and let borrowers all over the world access capital — even without a bank account.
It’s time to join the revolution against traditional banking! Create your free account now and see how you could be doing more with your money.
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