I think we can all agree that the current financial system is not functioning as it should. There are many reasons for this and many books have been and will be written on the subject.
In my opinion we need a complete back to basics approach to restore trust and confidence, Peer to Peer is all about trust and confidence so it’s not a bad place to start rebuilding the financial society.
In the UK many of us love our local building societies, or we did! They formed the basis of community banking; people saved locally and then this money was lent out locally.
I for one had my first ever savings account with The Cheshire Building Society, sadly after 140 years The Cheshire Brand is in the process of being binned by Nationwide who had to bail out the Local Building Society
In a modern internet world, this form of banking is no longer cost effective, attractive or viable. However the sentiment of community banking is alive and well more than any time in history, Peer to Peer lending or Crowdfunding is your new world community banking service, it’s just that the community is actually the world!
The internet has brought the world together via technology. Private individuals within the internet community can now agree for their savings to be lent online and obtain a potentially higher rate of return than the traditional banking and building society channels. The community can also insist what happens with their money, i.e. for it not to be used for casino banking or multi-million pound bonus payments to Banking Executives! but to be lent to real people and real businesses, because they are the one’s that really need to borrow in the economy!
The newspapers are calling it a “financial revolution”, I agree with them.
In simple terms;
Peer to Peer Platforms act as a matching internet/dating service for those who want to borrow with those who want to lend.
The borrowers get the loan they need, and as a result of the lender taking a risk on the borrower, they get a rate of return commensurate with that risk. The higher the risk of the borrower, the higher the potential return, the flip side to this is that there is also a higher potential risk of loss.
Peer to Peer lending is not covered by the Financial Services Compensation Scheme, however most reputable Peer to Peer platforms have safeguards or protected client accounts in place to provide for non-payment eventualities and or recovery of loan repayments. The key as a lender via these platforms is to spread your risk over as many loans as possible, and set your lending parameters based on your personal appeitite for risk, it’s up to you.
The “Risk Spread” principle has been operating for 322 years in the insurance market known as Lloyds of London. Lloyds of London serves as a partially mutualised marketplace where multiple financial backers, known as underwriters, or “Lloyds Members” or “Lloyds Names” come together to pool and spread risk. Peer to Peer is no different, in fact there’s probably less risk of losses on a well funded and supported Peer to Peer platform than there is in the Lloyds Insurance Market!
Fancy joining a financial revolution?
Check out the following;
To Lend to Individuals:
To Lend to Businesses: