Question

1. (Chs. 1 & 3) Rapidly developing technologies made peer-to-peer (p2p) lending a fast-growing segment of the financial services industry (see, e.g., lendingclub.com or google ‘peer-to-peer lending’). Do you think p2p lenders will become dominant, making traditional lenders such as depository institutions (e.g., banks and credit unions) obsolete in the next two or three decades? (Maximum 500 words.)

Answer 1

Peer 2 Peer lending is a form of crowdfunding which uses online platform to connect lenders directly with the borrowers to mutually agree upon a rate of interest. This method is used to fund ventures and businesses through small amounts from a large number of people.

Obsolete is a way to absolute to say, although this system has several advantages like stronger customer base, business partnership, easy access etc, but has several concerns like:-

1. Fraud & money laundering.
2. Cybercrimes, Account Hacking.
3. Home brewed credit ratings.
4. Lack of Expertisation of Small Ventures.
5. Startup Bubble.
6. Lack of Regulation and framework by central bank and government.
7. Unaccountability. etc

Thus, there is a need of proper policy and framework defining terms and conditions, proper registration and record keeping, specific cybercrimes networks to detect frauds, separate board of directors to assist investors, security mechanism like as blockchain which is used in case of bitcoins can be implemented. So, more regulatory tinkering and evolution is needed in order to compete and outmarket the traditional lenders like banks, NBFC's etc.