It began with a seemingly wacky idea to reinvent banking as we know it. But no one is scoffing at peer-to-peer lending anymore -- least of all, Wall Street.
Barely a decade old, “P2P” has gone mainstream and is now being co-opted by some of the big financial players it was supposed to bypass.
Investment funds can’t get enough of peer-to-peer lending, which involves lending to people over the Internet and hoping they pay you back. Investors are snapping up the loans directly, while the banks are bundling them into securities, much as they did with subprime mortgages.
Now peer-to-peer lending and its Internet enablers like LendingClub Corp., the industry leader, are being pulled into the high-octane world of derivatives. While many hail Wall Street’s growing involvement, others warn investors could get carried away with derivatives trading, as they did during the dot-com era and again during the mortgage mania. The new derivatives could help people hedge their risks, but they could also lure speculators into the market...
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- While the peer-to-peer lending sites have been effective at going around the banks to make loans happen and benefited from the banks' reputation for moving slow and stacking on the paperwork. The Wall Street bankers are no longer balking, instead they see a great opportunity. In fact, the bankers are rushing into the p2p loan action and that will only raise the demand for derivative products. It's just a matter of time before derivatives trading in the space becomes the norm.
- With the explosive growth of peer-to-peer lending business in the U.S., many speculators are questioning whether the p2p lending sites will keep high standards or drop them in order to stay competitive with the various p2p firms that are entering the market with different marketing angles.
- There are tons of small firms looking to create peer-to-peer loan derivatives and large global venture capital firms like Canaan Partners are willing to invest in such companies.