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More on the current opportunity for P2P lending

Paul writes about P2P lenders seeing a silver cloud in the sub prime mortgage crisis, and subsequent fall out.

I wanted to expand a little, on why I at least, believe that to be true.

Banks have many influences on their lending practices, andgenerally, only one of those influences is under the direct control of the borrower.  That would be the borrowers credit history.  Other influences felt by the Bank, are, central bank activity, wholesale markets, economic trends, portfolio performance, portfolio mix, bank profitability, and competitive pressures.

The result is that Banks can and do turn their lending practices on a dime, with apparent sudden alterations in risk tolerance, resulting in internal memo's to staff.  It can feel to a consumer as quite knee jerk.  These reactive policy changes are often a result of activities on the 'edge', but the middle ground borrowers and savers, are the ones who feel it too.

Social lending as the opportunity, to smooth out those reactive policy changes.  Lenders have circumstances that will drive their behaviours, as do borrowers.   The opportunity for those middle ground, average borrowers and lenders, is for a more ratonal, and simple to understand approach.

Time will tell.


Comments: (1)

Paul Penrose
Paul Penrose - Finextra - London 18 September, 2007, 10:50Be the first to give this comment the thumbs up 0 likes

UK P2P network Zopa is looking to cash in on the opaque nature of bank borrowing and lending practices. The firm has just issued a press release entitled: 'Northern Rock debacle highlights the big benefits of Social Lending'

"Social Lending not only offers people better rates, it also offers complete transparency," states the PR. "Lenders can see exactly who they are lending to, for what purpose and at what rate. Borrowers know exactly what rate they have to pay and who they are borrowing from. The suspicions and nervousness caused by the infinitely more complex and opaque ‘behind the scenes’ workings of Northern Rock remains a pivotal reason why their customers are leaving in droves, despite all the reassurances."

The firm also play up the tenuous link between the interest rates banks charge to their borrowers on one hand and the interest rates they pay out to savers on the other.  "The lack of transparency in this link creates big opportunities for the banks to ‘play games’ and engineer larger profits, especially when rates change."  

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