Peer-to-Peer Lending
Online platforms that connect borrowers directly with individual lenders, bypassing traditional banks.
What is P2P Lending?
Peer-to-peer (P2P) lending is a form of online lending that matches borrowers directly with individual or institutional lenders through a digital platform — eliminating the traditional bank intermediary. Borrowers typically receive faster approval, more flexible terms, or better rates than from banks, while lenders earn higher yields than savings accounts. Platforms like LendingClub, Prosper, and SoFi assess borrower creditworthiness, set interest rates, service loans, and handle repayments. Risks for lenders include borrower default, platform failure, and illiquidity (loans are not easily sold). The industry has evolved: most P2P platforms now primarily fund loans with institutional capital rather than retail investors, blurring the 'peer-to-peer' distinction.
Example
LendingClub, founded in 2006, was a pioneering P2P lending platform where individuals could fund personal loans in $25 increments. At peak, retail investors funded billions in loans. After obtaining a bank charter in 2021, LendingClub shifted to funding loans primarily through its own balance sheet and institutional investors — a common evolution showing how P2P platforms mature into more traditional lending businesses.
Source: LendingClub — Annual Report 2023