P2P lending seems to be here to stay, what other middlemen can we do away with?
The first time I heard of peer-to-peer anything was when Napster appeared on the scene, some time ago now. Copyright infringement soon stopped the file sharing that it encouraged between owners of digital music, as they hadn’t bought the rights to resell to others, or give the music away for that matter.
Wiki tells us that in computing or networking, peer-to-peer – or P2P – is a “distributed application architecture that partitions tasks or workloads among peers”. Peers are equally privileged, equipotent participants in the application. They are said to form a P2P network of nodes. Open source software and even Wikipedia itself are examples of this approach to collaboration.
Peer-to-peer lending is now taking off as well. In the UK, we have Funding Circle (See my blog Filling the Cash Hole on 14 November 2011) and Spacehive, a recent start-up hoping to “crowd-source” funding for public projects. Prosper and Lending Club are doing well in the US and in China CreditEase is doing rather well too. The spread of P2P lending is due to intermediation through the internet and electronic commerce. The recent confusion amongst our banks has probably also helped.
Cutting out the financial middlemen became a real issue for the first time in the modern era in 1967, when there was an incentive to buy financial securities directly. Later people started to go direct to the capital markets for cash rather than through the banks. The internet has made markets more transparent, allowing us to rebalance the information asymmetry that leads to our agents, the middlemen, getting too big a reward for what they do. This is fundamentally why we have realised, at last, that our bankers are overpaid.
P2P transactions encourage more efficient supply chains, albeit still with middlemen of one sort or another. The big difference though is that these transactions are much more transparent and the agents are more fairly rewarded for their efforts. It also exposes inefficiency and agents who have had it a bit too easy for too long.
What other supply chains are ripe for reinvention along these lines? How about estate agents or insurance companies. Until recently, I was a member of a sports club where we all insured our sports equipment using our own mutual scheme. Wouldn’t it be great if you didn’t have to fund all those people out there without motor insurance, or those that just drive less well than you do, when you insure your car? Is peer-to-peer insurance going to be the next big thing?
The only thing standing between you and your peer is the need for some entrepreneurial free spirit and a vision of a better world. Now, where is she?