Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
VR and Gaming Becomes the Metaverse - 7th Dec 21
How to Read Your Smart Meter - Economy 7, Day and Night Rate Readings SMETS2 EDF - 7th Dec 21
For Profit or for Loss: 4 Tips for Selling ASX Shares - 7th Dec 21
INTEL Bargain Teck Stocks Trading at 15.5% Discount Sale - 7th Dec 21
US Bonds Yield Curve is not currently an inflationist’s friend - 7th Dec 21
Omicron COVID Variant-Possible Strong Stock Market INDU & TRAN Rally - 7th Dec 21
The New Tech That Could Take Tesla To $2 Trillion - 7th Dec 21
S&P 500 – Is a 5% Correction Enough? - 6th Dec 21
Global Stock Markets It’s Do-Or-Die Time - 6th Dec 21
Hawks Triumph, Doves Lose, Gold Bulls Cry! - 6th Dec 21
How Stock Investors Can Cash in on President Biden’s new Climate Plan - 6th Dec 21
The Lithium Tech That Could Send The EV Boom Into Overdrive - 6th Dec 21
How Stagflation Effects Stocks - 5th Dec 21
Bitcoin FLASH CRASH! Cryptos Blood Bath as Exchanges Run Stops, An Early Christmas Present for Some? - 5th Dec 21
TESCO Pre Omicron Panic Christmas Decorations Festive Shop 2021 - 5th Dec 21
Dow Stock Market Trend Forecast Into Mid 2022 - 4th Dec 21
INVESTING LESSON - Give your Portfolio Some Breathing Space - 4th Dec 21
Don’t Get Yourself Into a Bull Trap With Gold - 4th Dec 21
4 Tips To Help You Take Better Care Of Your Personal Finances- 4th Dec 21
What Is A Golden Cross Pattern In Trading? - 4th Dec 21
Bitcoin Price TRIGGER for Accumulating Into Alt Coins for 2022 Price Explosion - Part 2 - 3rd Dec 21
Stock Market Major Turning Point Taking Place - 3rd Dec 21
The Masters of the Universe and Gold - 3rd Dec 21
This simple Stock Market mindset shift could help you make millions - 3rd Dec 21
Will the Glasgow Summit (COP26) Affect Energy Prices? - 3rd Dec 21
Peloton 35% CRASH a Lesson of What Happens When One Over Pays for a Loss Making Growth Stock - 1st Dec 21
Stock Market Sentiment Speaks: I Fear For Retirees For The Next 20 Years - 1st Dec 21 t
Will the Anointed Finanical Experts Get It Wrong Again? - 1st Dec 21
Main Differences Between the UK and Canadian Gaming Markets - 1st Dec 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Investing in the Next Google, P2P More than Just Sharing Songs

Companies / Tech Stocks Oct 09, 2009 - 05:06 PM GMT

By: Alex_Daley


Best Financial Markets Analysis ArticleYou know that house down the street that’s for sale? The gigantic castle of a house, with an uncut lawn, a few weeks away from foreclosure? That’s your fault. After all, it was you who loaned the former owners the money for the house they could never afford.

No way, you say? You’d never have loaned any money to that irresponsible hack. But of course you did lend it to him… just not directly. That’s what banks are for -- lending your money to other people, often people just like the owner of that house.

Forgetting for the moment how modern finance found a way to twist and pervert the banking system to its breaking point, for hundreds of years the foundation has been one of shared benefit and distributed risk. You keep some portion of your savings in a bank, and in exchange they share back a percentage of the proceeds from lending your money to others (including Mr. Irresponsible), keeping a cut for themselves.

That’s been the only option. Until now…

If the Internet is good at one thing, it is connecting large numbers of people to each other. Thus it seems only logical that the Web would be a more efficient way of matching lenders to buyers than any one local or even national bank. Electronic systems can connect people at scale, automating an otherwise manual process and eliminating scores of middlemen from the process. And that is exactly what a handful of new lending institutions on the Web -- such as and -- are starting to do.

They call it “peer-to-peer (or P2P) lending,” and the premise is simple: I have money I am willing to lend; you would like to borrow some; these companies bring us together and facilitate the loan. Because their systems are automated and connect lenders and borrowers more directly, the companies can afford to take much smaller commissions on the loan than a traditional bank.

As a result, you enjoy a much higher yield than on your savings account, and they attract borrowers by undercutting bank rates. Prosper’s returns for lenders average 7.02% for the highest three credit grades (the only data they make available). Lending Club averages 9.62% across all loans for investors. And credit is available to borrowers as low as 7.89%, much cheaper than most banks.

An investor can diversify by bidding to fund portions of many loans, in increments as low as $25 each. A $5,000 loan might be spread across as many as 200 individual lenders, each choosing to purchase a $25 note. The process is largely invisible to the borrowers, as they receive just one payment and pay just one bill. The companies collect and distribute the payments to each lender, proportionally to the amount each funded.

One of the more interesting, and unconventional, aspects of the sites is the way they use social networking tools to provide lenders and borrowers with a way to connect more directly. On each site, borrowers are required to provide not only credit history and similar information, but a brief personal statement on why they want the loan, and anything else they think is relevant. Lenders can browse the loans and pick specific people and specific requests they want to fund. takes this farther than, allowing borrowers to add photos and encouraging more dialogue -- on Lending Club, the descriptions are often just simple half-liners like “Buying a used Acura RSX.”

Browsing the loan requests provides a fascinating peek into what people borrow money for (weddings, used cars, debt consolidation, and home repairs look to be the most common, in no specific order), not to mention their credit histories, borrowing habits, and even spelling and grammar…

This technique of hand picking loans only scales so far, especially when lending $25 at a time. So both lenders also offer automated matching of loans to your criteria (loan amount, credit score, etc.).’s system is more automated and much simpler to use, but both are adequate for the job.

Of course, you also lose the liquidity that comes with indirect vehicles like bank accounts. But both lenders try to address this issue by packaging your loans as notes and allowing you to trade the notes in a market provided by FOLIOfn. has only recently restarted lending after a government-mandated quiet period while their note model was reviewed by the SEC, so activity on their trading platform is limited as they build the network. However, the Lending Club version is working smoothly, providing decent near-term liquidity options (and some good opportunities for arbitrage, we imagine).

If you’re looking for a way to diversify some of your investment activity beyond traditional stocks, bonds, futures, and the like, P2P loans could make for an interesting choice. Or if you just want to try the next new thing, they make for an entertaining way to play banker for a day (or 36 months, the length of the loan terms on both sites).

Technology is the number one growth industry in the U.S. – and many of those investors who have kept their eyes open for new, promising tech developments have been making fortunes in the process. Just think of the lucky people who invested in Google when it was still a small startup.

Finding the next Google is not impossible, but you have to know what to look for. Read this new report to get some ideas… click here.

© 2009 Copyright Casey Research - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in