Summary
Demand for credit has never been stronger. With government support P2P or "Social Lending" has the potential to improve the efficiency of credit markets and demonstrate US leadership in financial services innovation. The US is behind the curve in P2P lending innovation and losing ground due to the distraction and high cost of regulatory compliance. At a time when billions are being pumped into ailing banks government needs to find a way to encourage social lending. Improved regulation may unlock a wave of new credit options and provide economic stimulus at the grass root level. Conceptually Social Lending and P2P financial models makes sense for consumers, business and the greater economic good of nations; however, the effort to wedge P2P loan models into existing regulatory frameworks continues to impede American financial innovation.
Analysis
Pertuity is the latest well-funded social lending venture to launch in the US however their business model may be compromised in an effort to appease regulators. ZOPA’s successful P2P lending model was introduced in the UK in 2005. Subsequently they attempted to implement a modified bank sponsored model for the US but the effort to accommodate US regulation weakened their underlying value proposition to the extent that it was no longer viable and they withdrew from the US in 2007.
ZOPA continues to expand in the UK and abroad but not in the US. Worldwide over 40 P2P lenders have launched but so far only the Lending Club and now possibly Pertuity have been able to meet the bank-centric regulations imposed on US P2P and social lending innovators like Prosper.com and Loanio.
