This past year has seen tremendous growth within the arena of peer to peer lending. Companies like LendingClub.com have experienced something like 300% growth in twelve months, an unheard of pace for most companies within the financial sector.
This growth is a testament to two things. First, it is proof that there is plenty of cash available within our country.
Plenty of investors are out there searching for ways to put their cash to work. But secondly, this growth is evidence of a successful model. Prosper and Lending Club, the two big hitters in peer to peer lending, have discovered something that works.
It seems that this growth is really just the initial signs of a much larger movement: the decentralization of our country’s financial sector.
The technology age has ushered forth a new reality, that people no longer need bank intermediaries to move money between parties in responsible ways. Before the internet, companies like Lending Club could not have existed. Now, they and other companies like them seem an inevitability.
The truth is, this movement began much earlier. Services like Paypal.com have been running for a decade, helping people to securely move money between parties who do not even need to meet face to face. Peer to peer lending is simply taking this movement and building on it, adding loan grades, interest, and monthly payments from a bank account.
From Paypal to Lending Club, this movement is continuing forward, and shows no signs of stopping. In the future, it is a near-certainty that mortgages, student loans, car loans, and all other lines of credit will lose their centralization.
What excites me is the mass efficiency of this movement, the reality that this loss of centralization will be one less middleman taking a cut away from people who need a reasonable interest rate. The technology age, for all its problems of noise and waste, has the potential to dramatically improve the experience of borrowing and lending money.