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Home > Blogs > Moorad Choudhry > P2P lending will finish banks! Yeah, right…

P2P lending will finish banks! Yeah, right…

P2P lending will finish banks! Yeah, right… Moorad Choudhry

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Just recently I’ve read some good things about peer-to-peer (P2P) lending: how it’s growing fast; how it offers a superior product and better interest rates to both savers and lenders; how its use of the internet gives it a march on the technology stakes compared to banks; and how it simply is wonderful simply by dint of not being offered by banks.

All the above is certainly true today. To quote The Economist this week:

“By offering both borrowers and lenders a better deal, websites that put the two together are challenging retail banks.”

Again, unarguable as a statement. But what made me smile was something else - an Op Ed piece in The Times last month, which suggested that this development would usurp banks completely. The article quoted Bill Gates: “Banking is essential. Banks are not.”

Mr Gates is someone who is in my list of the Top 10 greatest human beings of the post-war era. Not just for what he did with Microsoft (trust me, as a young bond trader just joined Hoare Govett Securities back in 1992, having to use Lotus 1-2-3 in DOS meant I would forever be in thrall to the man who gave us Excel!) but also what he is doing now with his charitable foundation. A genuinely great man.

But his statement on banks bears scrutiny, because unless it is arguing on a definitional point (what exactly is a “bank”?) then I’m not sure how it can be correct under any circumstances. But the even bolder claim was the one in The Times Op Ed. P2P about to remove the need for banks? Pull the other one, it’s got bells on. What is the one product that is essential to the functioning of modern commerce? The current account. Or “checking account” if you prefer. A safe deposit for your funds that you can access instantly on demand at any time from the branch, ATM, telephone, internet or mobile device. The humble money transmission account. And more often than not it can go overdrawn, again at any time and with instant drawdown – a very useful feature indeed for companies or individuals.

Is that all that it offers? No. It’s also universal. No dress code, anyone can come to the party and open one.

I’ve just described the great unsung hero of the global economy, vital and irreplaceable in every country in the world. It isn’t on anyone’s list of the Seven Wonders of the World, but it should be. And the only institutions that offer it? Banks.

How many P2P firms offer such a product? None.

‘Nuff said…

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Tags: bank , Bill Gates , bond , commerce , current account , drawdown , lender , P2P lending , peer-to-peer lending , saver , The Economist , The Times
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