Originally published June 2019.

One cynical – but useful – view of modern technology is that it allows us to play through the scams and mistakes of the last few millennia at warp speed. Bitcoin and associated cryptos have gone through every fraud that anyone’s been able to come up with since Ur of the Chaldees invented the idea of monetary exchange. The grand idea of peer-to-peer lending is suffering at least in part from a similar process. And the lesson is that the essence of banking isn’t in making it easier to lend, it’s in being able to find those useful to lend to.

The idea at the heart of peer-to-peer lending is great. The thing the internet has enabled us all to do is disintermediate. We don’t have to gain our classified ads along with the local newspaper any more, we get them on Ebay and Gumtree. Buying car insurance doesn’t require a visit to an office – and thus isn’t limited to the choice of those who have invested in a chain of offices. Why not bring that same force to lending and match up willing lenders with willing borrowers online instead of having to use an expensive retail branch network?

There’s nothing wrong with the idea at all, except except to think the intermediation is the difficult bit of banking. In fact, it’s the easy bit. It’s finding people who might pay it back which is the hard part. Peer-to-peer platform Lendy is finding this out the hard way, as others may do too. According to The Times:

A week before the collapse of Lendy, the chief executive of Barclays business banking gave a warning of what might be in store for peer-to-peer lending.

Platforms linking ordinary investors and business borrowers were exposing people to poor-quality debts, Ian Rand, 49, said. There were, he added, “a lot of people that banks wouldn’t lend to who went to Wonga instead. That didn’t work out too well for them or for Wonga. I am nervous that we could be going down the same path with business lending.”