Peer-to-Peer Lending and the Future of Cooperation
An entrepreneur born in 1990 has grown up in quite a different world than one born in 1960. Imagine a person born in 1960 opening a restau- rant in 1985. She would have relied on traditional outlets such as banks, credit unions, and investors for business capital—unless the venture was self- funded. Many industries in 2015 would be mostly unrecognizable to an observer from 1985, from retail to entertainment to travel. The funding industry is no exception. Today’s 25-year-old entrepreneur is living in a new era of lending where tra- ditional institutions are competing with new alternatives. Instead of going to a bank or credit union for business capital, the 25-year-old entrepreneur can turn to online- enabled crowdfunding platforms. These platforms allow large numbers of people, often strangers, to pool their financial resources to achieve common goals and finance everything from new consumer products to feature- length films, charitable causes, and, most recently, consumer loans. There are thousands of crowdfunding platforms, each using a unique business model and financing strategy and targeting a different and increasingly specific niche.
In this report we investigate the major providers of peer-based lending and analyze the opportunity for credit unions. This type of lending is between identifiable individuals or businesses and harkens back to the long credit union tradition of reputation- based service delivery. It may present oppor- tunities to extend credit union services to new members and provide alternatives to poor and exploitative options.
Alongside a modernization of and return to core credit union values, the peer-to-peer lending market has major disruptive potential. Online peer-to-peer lending platforms can provide a pipeline to bring in new members who might not otherwise consider a mainstream financial institution as well as a range of new algorithmic tools that can aid in lending decisions.
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