Savers often complain of the low interest rates they earn. This should ideally translate into happy borrowers, who should be able to borrow cheap. But this logic, although mathematically true, doesn’t work since the intermediary (bank) takes a cut from both ends to fund its high operational costs.
Peer-to-peer (P2P) lending platforms have surfaced to exploit this inefficiency. Much like traditional banks they connect borrowers to lenders, but through online platforms. A lender can either pick a borrower via an auction or choose to spread the funds across a portfolio of borrowers.
Being digitally operated means that P2P lending platforms don’t need to maintain the branch infrastructure which is one of the largest cost components for retail banks. Advantage is passed to both lenders and borrowers. Operational leanness of their business model further reduces costs and benefits the customers.
The phenomenon is gathering momentum. In Britain, P2P loan volumes are…
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