Traditional scheme:  

  1. Investor makes a 1% deposit to the banking account  
  2. The bank originates loans pool averaging at about 7%  
  3. The bank reaps healthy margin of 7% - 1% = 6$  
  4. Investor gets his 1% return.

P2P scheme:

  1. Investor makes a deposit to the P2P Platform Company
  2. Investments are distributed among numerous borrowers (qualified under risk assessment program of the PC) with total average return of 7%
  3. The PC takes a fee of 1% platform managing fee
  4. Investor gets his 7% - 1% = 6% return.


Weakest part of P2P scheme:

 Current risk assessment models have already proved its efficiency in numerous P2P companies and they are still being improved to achieve even better results. However, due to the fact that some of P2P companies target high risk borrowers which are bypassed by majority of banks there might be some higher rates of defaults. Anyway, this problem can be tackled with a more conservative Investor's approach by accepting lesser % return for his / her investment. 
Another important point is a possibility of fraud by the senior management of these companies. Unfortunately, there were some loud bankruptcy cases such as Ezubao (China) or TrustBuddy (Sweden). These events definitely slowed overall adaption speed of P2P investment methods, however, the same fraud events are present globally (Lehman, Countrywide, Bear Sterns, etc) also in the banking industry. No point to be scared of the new evolving technology which should completely change lending, investment industry during next years.  

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P2P scheme is clearly a win-win situation for both Investor (getting higher profit), platform (getting commission) and the borrower (who might get even better terms - lower %). In addition, you promote appearance of new technologies - technical progress, thus increasing competition / pressure on traditional less effective businesses which promotes cheaper prices for the whole financial sector.

The losing party - banking sector, which is pressed to compress operating margins due to higher competition.

Let's discuss it 

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