Peer To Peer Lenders Need Not Fear “Shadow Banking” Risks

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Audrey White
23rd June 2015

Attempts by some in the banking world to associate peer to peer lending with “shadow banking” simply don’t pass muster.

Shadow banking typically refers to hedge fund, private equity and other activities of the type that the International Monetary Fund says contributed to the economic crisis that began in 2007. As bank leaders try to paint peer to peer lending with that same brush, leaders in the P2P industry like Zopa founder Giles Andrew have been quick to distance themselves from shadow banking as a label and approach to finance.

“When Zopa became the first P2P platform to launch in 2005, we knew that persuading consumers to trust us with their cash was crucial to our business. This meant being a transparent and responsible lender from the start, extending credit to “super-prime” borrowers and building a risk function robust enough to withstand the seismic economic shocks that came along a few years late,” Andrew stated. “The activities of the P2P lender that I helped set up, Zopa, are as far from shadowy as the most diligent regulator could hope for. A founding principle of P2P lending is to ensure that platforms are open and transparent about lending.”

Likewise, rebuildingsociety.com endeavours to uphold the highest standards of financial integrity, user trust and transparency.

“It’s great that people are beginning to think of the peer to peer industry as trustworthy enough to be considered an alternative to the banks, but the differences between the two models are noteworthy,” said Adam Knott, rebuildingsociety.com’s Digital Marketing Manager. “rebuildingsociety.com will always strive to offer a fair and transparent service and a genuine choice for investors and borrowers alike.”

As the banking model is challenged by alternatives, it may continue to vilify those it views as competitors. However, good peer to peer lenders will continue to pursue a promising financial model with a spirit of fairness and honesty.

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