This is a guest post from Suretize. Suretize is about making money from money. For individuals, it provides ‘starter’ information about how to maximize the money they already have. They have created the below timeline and post to outline the history of peer to peer lending.
The History and Rise of Peer to Peer Lending from Suretize.com.
Peer to Peer lending is a decentralised form of money lending where people make direct loans to those in need of money. Also known as social lending, it’s been in use since the early 1700s, when the famous Irish author of Gulliver’s Travels – Jonathan Swift – lent small sums of money to those in need, to be repaid without interest!
Throughout the 18th and 19th centuries, Peer to Peer lending became one of the most widely used money lending methods in Europe. Although it became less popular in the 20th century as banks grew in influence, it’s recently boomed due to the internet.
With Peer to Peer borrowing, pretty much anyone can borrow from anyone. Today’s P2P lending platforms sometimes allow borrowers to inform creditors about their needs and background in the form of an online profile.
Digital Peer to Peer lending has grown in the UK since the launch of Zopa in 2005– an online lending platform that’s lent over £635 million to borrowers. Zopa was the first Peer to Peer lending platform to launch in the United Kingdom.
A turning point in the recent history of Peer to Peer lending was the bankruptcy of Lehman Brothers in 2008. As people lost confidence in financial institutions and were no longer able to secure credit at a reasonable level of interest – Peer to Peer lending emerged as a viable alternative.
Prior to the financial crisis, most people had exclusively used banks as a source of cash when in need. Houses, which had previously been used as security for a loan, lost much of their value, and institutional lending became far less accessible.
From 2007 to 2013, Peer to Peer lending in the UK grew from a margin activity into an industry with an expected £1bn in annual turnover this year (2014). Nesta, a UK innovation charity, found that 77% of companies that use P2P lending were “likely or very likely” to use it again.
When compared with traditional lending options, Peer to Peer lending has a number of advantages. It offers a higher rate of return for investors than a savings account, a greater level of access to finance for borrowers and improved transparency for all.
Today, banks are aware of the rapid growth of Peer to Peer lending and view it as a potential source of competition. A Wells Fargo internal memo banned bank employees from engaging in P2P lending(2013), calling it a “competitive activity that poses a conflict of interest.” – The ban has now been dropped in a sudden reversal of internal strategy(2014).
Banks and P2P lenders are starting to see that it may be beneficial to partner up in this new age of alternate banking. Santander was the first high-street bank to make the move and partnership with Funding Circle earlier this year. RBS and Natwest are set to make the next move into the market. Ross McEwan, chief executive of RBS said “RBS and NatWest will be launching a network of eight new business accelerator hubs around the country to provide thousands of SMEs with the offer of free workspace, hands-on mentoring and a free programme of advice and support,”.