Person-to-Person Lending Making Waves

Heralded by Business 2.0 as an innovation that will transform the financial services industry, what started in March of 2005 with the introduction of UK based Zopa, has grown into a burgeoning marketplace.

Person-to-Person (P2P) lending has already shown some early successes. UK-based Zopa, which reports a membership of 175,000 members, has recently expanded their operation into the U.S. establishing a San Francisco headquarters. While the largest P2P lender, Silicon Valley-based Prosper Marketplace, reports a membership of 490,000 showing the ability to attract the critical mass needed for any financial venture to succeed.

This critical mass has even lead to the recent development of a secondary market for Prosper, a system enabling lenders to resell loans originated through its network.

Such developments will continue to push growth as a younger generation of consumers, readily accepting of financial transactions online comes of age.

But as this growth and development continue and more sophisticated investors are attracted to these networks, uncomfortable questions will inevitably be raised. Whether P2P lending truly evolves into the disruptive innovation some think, will rely heavily on how difficult questions are answered.

These questions surrounding risk, default and their proper handling, will be of increasing importance as a market solely dependant on lender confidence continues forward.

Read Dimitri’s analysis piece on P2P lending here.

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