Is peer to peer lending the future of investment banking?

 

Over the years, peer to peer lending and fundraising has become more and more popular. Online platforms allow groups of people to pool small amounts of money together to raise funds for a specific cause. There is no limit with the peer to peer market and there are mutual benefits for all those involved. 

Peer to peer services take place between two individuals directly without a third party intermediating. They occur on platforms that are decentralized and provide a vast number of services themselves such as: rating, screening, and payment processing. Peer to peer services can be as simple as buying and selling products.  It’s also called the sharing economy. Without a third party moderator, transactions may become unfair and services the provider is offering may be delivered at a lower quality than expected. This is why peer to peer platforms are necessary to facilitate these transactions and reduce the risk for both the seller and the buyer.  Platforms make revenue by making the buyer and seller both pay a small fee. They can also make revenue by selling space on their platforms. 

Types of peer to peer services:

Open source software

With this type of service anyone can open, use, or edit code for software. This eliminates a centralized publisher or software editor by crowdsourcing the code. 

File sharing 

This is when users meet to upload and download media and software files. This service can also provide scanning and security for shared files. 

Online marketplaces 

This is for private sellers to find interested buyers online. These services can provide ratings of buyers and sellers based on historic relations, promotion of sellers products, and process payments. 

Blockchain and cryptocurrency 

A network where users can make, process, and verify payments without the use of a central bank. Blockchain enables individuals to transact with businesses using cryptocurrency. 

The advantages of peer to peer business 

Reduced costs is one of the big selling points of peer to peer businesses. This is because there isn’t a third party that will take a large percentage of the transaction as a fee. Due to the buyers and sellers interacting directly, the total amount of the transaction decreases in price. There are also other costs that are cut out because of peer to peer businesses such as: marketing, negotiation, advertising, and insurance costs, amongst many others. 

There is a reduction of risk in peer to peer networks for users. Peer to peer platforms screen their buyers and sellers to make it safer for both parties. Specialization of labor: since service providers won’t need to focus on how to commercialize their businesses, they can focus all their efforts on improving their expertise in their business. 

Disadvantages of peer to peer 

There are also disadvantages in peer to peer networks. The biggest disadvantage is that files and folders cannot be centrally backed up. This is because they are stored on individual computers and may be difficult to locate on a huge network. Besides permissions, there can be little security for users. Although there are disadvantages to the sharing economy, it is still developing and the problems faced today on platforms can be solved in the future as more money gets invested in the network.   

Peer to peer vs banks

P2P lending platforms can be more advantageous to borrowers in comparison to bank loans. With bank loans, the security is limited to the bank and not the people involved. With P2P lending, borrowers can pay back the full amount early without having to pay fees for lost interests gains.

To check out an example of Defi check out the Spark Network