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Two-Handed Choke Hold on P2P Lending
What will be the impact for consumer & small business lending in the future of peer-to-peer lending? How will the banks respond? Which model of peer-to-peer lending will be the most successful and why?
Those are the questions asked by Jake McDonald of Bank of America in a LinkedIn discussion this week.
I have to say I am not encouraged. The numbers are small. Since its inception in 2006, Prosper has originated $192 million of loans in total. Bank of America, McDonald’s shop, originated $1.46 billion (with a “B”) of small business loans in just the month of December 2009. P2P volume will remain small for the foreseeable future for two reasons:
- The return to the “lenders” is not worth the effort. It is not long before these “lenders” realize that they have to underwrite the loans they are making, and underwriting is hard. So, without an abundant pool of lenders …
- “Borrowers” will find that getting a loan is not any easier through a P2P channel than through traditional lending channels. Certainly, the volume of capital available through traditional means far, far eclipses the capital available within the P2P channel — even with the wholesale reduction of available credit out there.
This two-handed choke hold will prevent rabid growth in P2P. P2P is a niche, and it will stay that way, in my view.
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