Would You Like to Lend to Banks?
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Peer to peer (P2P) lending has been around for a while, but it has really been gaining in popularity since the financial crisis. With the credit markets gummed up, many people are turning to regular people — with the help of such organizations as Prosper and Lending Club — to get financing. And ordinary people are willing to supply this financing, since it often provides better returns than many of the current investments are offering. For the most part, though, P2P lending focuses on getting individuals together. But now Prosper wants to arrange it so that banks can put their smaller loans up for bid. BusinessWeek reports on how this person to bank lending would work:
How will peer-to-peer lending work for financial institutions? Just as in any regular loan, the financial institutions—banks, car dealerships, community lending organizations, and the like—will lend to people buying a car or running a business. The loan must then gestate for three months. After those first three payments have been received, the financial institution can post the loan for bids on Prosper. This is not meant to be a place to unload toxic bank loans (there are other places for that), and only loans up to $25,000 that are current on payments may be posted.
It’s an interesting idea that could actually help loosen the credit markets a bit. Banks could make some money on the spread between the it’s rate and the rate being charged by the regular folks. And the regular folks get access to investments that have the potential to be of reasonably high quality.
It’s an interesting concept. Normally, the relationship between bank and consumer is limited to the customer receiving interest on money it has in the bank (and that the bank lends out to others to make more money). This setup would provide better returns for customers than savings account yields, and it would help banks keep credit moving. It will be interesting to see whether Prosper gets SEC approval — and whether the process works as it should.
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April 28th, 2009 at 1:06 pm
[…] small) for keeping the money there and lends the money to others at a much higher rate. With the new scheme introduced by Prosper, though, you could fund bank […]
April 29th, 2009 at 9:01 pm
[…] small) for keeping the money there and lends the money to others at a much higher rate. With the new scheme introduced by Prosper, though, you could fund bank […]