Created to democratise credit, P2P lenders are going after big money

“GET YOUR money right,” says a giant billboard in garish, Instagram-friendly colours in San Francisco’s downtown. It is part of a campaign by SoFi, a fintech firm, to position itself as a one-stop shop for alternative finance. Founded in 2011 to cut the cost of student loans by enabling alumni to sponsor undergraduates, last year SoFi spent over $200m courting shoppers, homebuyers and young parents. It now collects funding from a wide variety of investors, including big institutions.

The vision behind peer-to-peer (P2P) lending—allowing one ordinary person with spare cash to help another with a decent plan for spending it—was always a romantic one. Today only a few die-hards like RateSetter, a decade-old British lender, still hew to it; the rest, like SoFi, have diversified. New rules in Britain are the first salvo in a regulatory effort that will bring greater scrutiny. The bets P2P firms have made as they have grown will make or break them.

Zopa was the first P2P lender, in Britain in 2005, closely followed by Prosper and LendingClub in America. The industry took off after the financial crisis of 2008, when consumers lost confidence in banks and started to move their lives online. The idea was that lower costs and less red tape would enable firms to serve clients whom banks shunned.

The retail investors who...

via The Economist: Finance and economics Business Feeds

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