Finance Editor Not Impressed With P2P Lending's Impact On Market?

From www.economist.com -

The audio you will find below is from a financial world highlights segment produced by the Economist website, the series is titled “Money Talks”. Edward McBride is being interviewed, he's The Economist's finance editor and at the 3:20 mark of the video he answers questions about the peer to peer lending market and its rise in popularity.


Mind you, this interview was held just prior to the wildly successful Lending Club IPO, they discuss how Peer to Peer lenders wants to go around the big business banks and directly link investors to borrowers.


Editor’s Note: Mr. Mcbride acknowledges that p2p lending is disruptive to the banks because it gives people a different way to do things but he seems to slightly "poo-poo" peer to peer lending because it's "relatively tiny" in the realm of finance today. We see this as a good thing because it shows the amazing grPeer to peer lendingowth potential of the p2p lending market.

He openly admits that because peer to peer lending platforms are high tech firms, they are data driven and have much better software than the banks. Because of that they are much better able to assess the risks of the lending that goes through their platform.

In the interview they discuss the fact that p2p lending is regulated, that they are not under the radar of regulators by any means but the regulations are generally less strict on p2p lending platforms because if a peer to peer company fails, the end result is the investor losing their money but nobody will lose their deposits and the state isn't called in to financially back the p2p company.

That is not the case with banks, so the regulators don't feel as much pressure to heavily regulate p2p lenders like they do with traditional banks backed by government money. Here are our article highlights:

  • McBride says it's hard to know if the lower default claim of p2p lending platforms is true until borrowers are really stretched for money with a huge downturn in the economy.
  • Peer to peer lending is so young it's hard to know if they will have lower or higher default rates yet.
  • McBride seemed to take a "wait and see" approach to the true impact p2p lending will have on the financial landscape.

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