There's a disruptive force in the world of banking, in which individuals borrow money from regular people rather than go to a bank. It's called peer-to-peer lending. Think of it as an eBay
Business 2.0 magazine singled out Zopa as a disruptor to traditional banks in the United Kingdom. Banks serve as the middlemen between borrowers and lenders, and they are effectively cut out in peer-to-peer lending. The model seems to be working. More than 90,000 people have signed up for Zopa, according to Business 2.0, and only a very small percentage of loans go uncollected. It's no surprise that Benchmark Capital, the venture capital firm that supported eBay, is behind Zopa.
Zopa makes its debut in America next year, but Prosper.com, also backed by Benchmark Capital, is already up and running and is built on the innovative idea of allowing borrowers to form groups. The idea is that lenders will give better rates to groups that have a good reputation. Prosper.com is basically harnessing the power of community and network effects, much as MySpace does. A great article from bankstocks.com illustrates one person's lending experience with Prosper.com.
I don't see these peer-to-peer lending sites threatening Bank of America
Peer-to-peer lending sounds like fun and games, but there's always risk involved with lending. Banks specialize in assessing and managing risk, and that's why they're so profitable. If you choose to lend to peers, spread your risk across different borrowers so that you aren't taking a bath if one defaults.
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Fool sector head Joey Khattab does not own shares of any of the companies mentioned.