Peer-to-peer Lending Provides a Friendlier Alternative to Wall Street

Wall Street may be facing some competition from new, innovative financial services that are looking to push their way into what has traditionally been perceived as an industry with huge barriers to entry. Funding Circle and SmartBiz are just some examples of new actors in financial markets that aim to make previously costly services like investing and obtaining loans accessible to small businesses and individuals.

Complicated products, misleading sales tactics, and a lack of transparency are just some of the cited reasons as to why there has been such a demand for an alternative to the practices of the financial establishment. Peer-to-peer technology is still relatively new to finance, and could disrupt traditional financial service providers similar to how it disrupted transportation and housing. Funding Circle has lent more than $1 billion through a peer-to-peer business model since it was established in 2010.

Platforms like Loyal3 provide an opportunity for individuals to invest in the shares of many companies for free. Others like Aspiration allow people to invest as little as $500 into their own hedge-fund-like product. There are tech startups looking at lowering the costs of entry into almost every sector of the financial industry—even major, established players like The Goldman Sachs Group Inc. have been attempting to compete with their own peer-to-peer lending service. In an interview with Bloomberg, PayPal Inc. co-founder Max Levchin stated, “Pretty much every kind of financial service is just waiting to be reinvented for modern Americans.”

This provides small businesses, of which there are almost 28 million in the U.S., with access to financial services outside of established financial corporations. Peer-to-peer organizations also claim to avoid riskier practices and have attempted to present themselves as more transparent and trustworthy financial service providers – an option that is appealing after the 2007-2008 financial crisis that damaged many businesses.

These kinds of market responses to established practices are the lifeblood of creative destruction. If consumers are unhappy with current service providers, they will seek out new ways of producing that service, and if these new innovations are successful, they can undermine the established, traditional components of the industry.

Overall, consumers benefit because these industries eventually evolve to provide superior service to the consumer. While key players in finance may be unlikely to disappear any time soon, innovation and entrepreneurship has created alternatives that many will welcome.

More Blog Posts

05-20-2020 01:20pm

StoryCorps Connect During COVID-19: Finding a New Way to Share America’s Stories

StoryCorps pivots to digital to keep building connections between people during the pandemic.

Read more

05-19-2020 05:39pm

Free speech provides comfort during COVID-19 pandemic

Trying circumstances can also present opportunities for people to come together. When people feel as if they face a common challenge, differences and divisions begin to blur. That’s cause for optimism.

Read more

05-14-2020 11:20am

Five steps for public officials to protect public health, regain public trust, and ensure civil liberties during COVID-19 crisis

Americans and their public officials grapple with the dynamic while working to protect public health and maintain the public confidence necessary for successful adoptions of temporary measures and ultimately restoration of their full civil liberties. Charles Koch Institute Senior Fellow Casey Mattox offers advice on the subject.

Read more

Sign up for updates