Zopa, backed by SoftBank, and $ 3 billion LendingClub are some of the firms that enable individuals to lend directly to SMBs or consumers. By avoiding expensive bank branches, they wanted to offer investors higher interest rates and provide borrowers with quick and competitive loans. In 2015-17, individuals donated over 1 billion per year to the LendingClub platform. But after buying a bank in 2020, the US corporation no longer accepts private money between private individuals. The British company Zopa will also focus on banking.
Although the pandemic didn’t help, the institutional ones on some platforms had already started crowding out private money. Expensive advertising is required to attract individuals, and customers can only invest a few thousand dollars at a time. Hedge funds and insurers often sign multi-million dollar loan agreements.
Then there are the regulators. After LendingClub bought a bank, they said it should reserve capital for peer-to-peer (P2P) lending, even if the exposure was passed on to investors. That ruined profitability. Zopa lenders had to take knowledge tests, and few passed. The lesson for Fintech, In particular, cryptocurrencies, is that regulators can make life difficult for companies trying to create a new class of asset.
Also, keep in mind that it is difficult to beat the banks. The P2P pioneers theorized that in the end they would cover their financing costs. It was always difficult. Since banks fund the majority of their balance sheets with deposits, their overall costs are very low. Instead, Zopa’s lenders charged 4%. This is important for companies like Affirm and Afterpay that rely on wholesale financing. When interest rates rise, those costs tend to rise faster than deposit rates, allowing lenders to fight back with their own installment loans. Creating elegant websites is possible; Another thing is that the loans are cheaper.