Peer-to-Peer

Peer-to-Peer

Peer-to-Peer is perhaps the biggest driving force behind FinTech. By using technology to directly link peers you can increase efficiency and reduce the points of contact in any transaction. As each point of contact requires some form of payment for their facilitating role they simply add additional costs and complexity.

Consider a loan from a bank as an example in simple terms:

I deposit my money in the bank for which I expect to receive a return for letting them use it to make loans rather than holding it outside the banking environment. You borrow money from the bank so that you have access to funds that you would otherwise have to save before you could make a purchase you want to make today. The bank for their role in finding a suitable borrower, facilitating the loan and taking the risk on this one loan then charges you far more for the loan than they give me as interest. While this seems like a fair process when you add a significant number of staff, a network of branches, the subsidies of losses across other investments and almost unimaginable profits. Not to mention that personal loans such as in this example are one of the highest profit centres for a bank’s bottom line and the fair price seems to change.

Now if you remove the bank from this example and you can lend the money directly to the person that needs the funds you receive all of the return. Of course you still need to find interested borrowers and eliminate the risks associated with lending to stranger but that’s where new lightweight peer to peer lenders come into the picture. Now if you meet their stringent borrowing criteria they can offer you a better rate at which to borrow while still providing me a better return than the bank. It really is a win-win for every party that’s involved.

Now expand this concept to business loans, currency conversions, and even everyday payments and you can start to see the value in this new model. Bitcoin is perhaps the most famous peer-to-peer product you have heard of but you will find products that operate within this frame work on this site amongst the borrowing, investing, business and currency products.