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Peer-to-Peer Lending: Opportunities and Risks

Published online by Cambridge University Press:  20 January 2017

Rainer Lenz
Rainer Lenz*
Affiliation:
International Finance at the Business Faculty of Bielefeld University of Applied Sciences, Germany
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Abstract

Web-based financial intermediation on a peer-to-peer (P2P) basis will eventually prevail as an economically superior form of organisation compared to the traditional banking business model. P2P lending is the most popular type of crowdfunding, whereby an internet platform collects small amounts of funds from individuals in a crowd to finance collectively a larger loan to individuals or businesses. Unlike a commercial bank, the platform does not take risks through its own contractual positions. Whereas banks accumulate risks by taking positions on their balance sheet, platforms decentralise the risks by spreading them to their users. The emergence of financial platform businesses challenges legislators and regulators in several respects: the “easy way” of modifying existing finance and banking laws is inadequate; the internal organisation and knowledge of staff is not well suited to regulating crowdfunding; and capital mediation by crowdfunding platforms requires a different regulatory approach than banking. Finally, there is no doubt that P2P lending platforms will in the long run need a dedicated, single European regulatory framework.

Type
Special Issue on the Risks and Opportunities of the Sharing Economy
Information
European Journal of Risk Regulation , Volume 7 , Issue 4 , December 2016 , pp. 688 - 700
Copyright
Copyright © Cambridge University Press 2016

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References

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22- In this regard, the British P2P Finance Association is with its Operating Principles for members certainly exemplary. Available at: http://p2pfa.info/rules (accessed 19.07.2016)

23- One should keep in mind the numerous national codes of conduct in the field of corporate governance.

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29- An exception are those platforms registered as Payment Service Provider. Based on the Payment Service Directive (PSD2) they have to have own funds and safeguards in relation to business continuity and contingency plans. Revised Directive on Payment Services (PSD2), available at: http://ec.europa.eu/finance/payments/framework/index_en.htm (accessed 12 July 2016).

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31- Financial Conduct Authority, supra note 2.42, p. 18. “At present, high-level rules require firms to provide potential investors with information so they are reasonably able to understand the nature of the investment and associated risks and, consequently, to take investment decisions on an informed basis. Information must be fair, clear and not misleading. It must be accurate, balanced, sufficient for the needs of the investor, presented in a way that is likely to be understood, and important information and warnings must be given clear prominence.”