Zopa co-founder and CEO Giles Andrew has joined a growing chorus of industry leaders disputing the description of peer to peer, or marketplace lending, as “Shadow Banking“. Of course this could be just a natural reaction from traditional banking. As the banking model is challenged, perhaps it is better to vilify the upstart internet finance firms? Or maybe it was just happenstance that anything without an ATM or brick & mortar branches got lumped together, and P2P lending firms checked both these boxes. But according to Giles nothing could be further from the truth and peer to peer lending is more transparent than ever.
“When Zopa became the first P2P platform to launch in 2005, we knew that persuading consumers to trust us with their cash was crucial to our business. This meant being a transparent and responsible lender from the start, extending credit to “super-prime” borrowers and building a risk function robust enough to withstand the seismic economic shocks that came along a few years later.”
“the activities of the P2P lender that I helped set up, Zopa, are as far from shadowy as the most diligent regulator could hope for. A founding principle of P2P lending is to ensure that platforms are open and transparent about lending.”
Yes the financial meltdown caused profound and justified concern about systemic issues within the global financial industry. Markets are so interwoven these days you cannot move one, without impacting another. Global regulators are rightly anxious about future shocks to the system but this uptight environment is the one in which peer to peer lending evolved. In fact at least in the UK, the industry advocated for more formal regulation;
“P2P lending is perhaps the only part of the banking industry that has actively lobbied for greater regulation – again, we see FCA oversight as vital in fostering consumer confidence in the sector,” states Giles.
Most peer to peer lenders in the UK, similar to those in the US, are highly transparent operations that allow anyone the ability to view the loans alongside expected returns. Individuals may invest side-by-side with large institutions on similar terms. Giles notes that high street banks are still suffering from the lost trust from consumers;
“the fact is that the mainstream banks are nowhere near regaining the trust they lost in 2007-08, and consumers are increasingly of the view that P2P offers a much brighter and more transparent alternative. One where no shadows exist at all”.
Perhaps a bit more daylight into old school banks would have helped to avoid the financial debacle of the last decade?