Why the peer-to-peer revolution has got old order running scared

THERE'S arguably no greater sign of fear than a prohibition – which makes news that the US bank, Wells Fargo, has banned staff from making private P2P loans with their own money (on grounds of “a conflict of interest”) all the more interesting. It shows just how rattled Big Banking is by the growing strength of “alternative finance” models, like peer-to-peer lending and crowdfunding.

The prevailing view is that the banks got away with the crisis scot-free. That, despite endless attempts to reform the sector, nothing essentially has changed. There was certainly destruction – but it wasn’t the healthy “creative” sort that economist Joseph Schumpeter argued held the key to renewal and revitalisation. In short, a great opportunity to restructure a dysfunctional system has gone to waste.

That may be overly pessimistic. Peer beneath the surface and there are plenty of “disruptive” new elements challenging the established order – fuelled by a combination of disenchantment with the banks, and the enabling power of the internet. In the UK, Zopa, Ratesetter and Funding Circle have been nipping at the heels of established lenders, in both personal and small business lending. In the US, sites like Prosper (no relation) and Lending Club have had even more influence. Their – to date, very successful – model has been to cut banks out of the picture completely, by linking lenders directly with borrowers at favourable terms to both.

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In the context of the overall banking universe, the business they’re doing is still comparatively small (Zopa has lent just over £350 million in total; Lending Club ha$ provided $3.35bn worth of loans in five years). But it’s the rate of growth that freaks out incumbents. And the same is true in other sectors.

“What happens when you append five hockey sticks together? What does that look like,” an Airbnb exec recently asked an audience at a start-up event in California. His answer was to point to a graph of the company’s five-year growth trajectory. Since launching in san Francisco in 2008, Airbnb – an online platform that unites travellers looking for reasonably priced accommodation with locals in possession of a spare sofa/room/flat/castle – has become the poster child of the so-called “sharing economy” (or, if that’s too twee for you, the “shared economy”).

“Airbnb could do to hotels what Amazon has done to bricks-and-mortar bookstores,” says the Wall Street Journal. Having served a total of nine million guests to date – and with 500,000 properties now available in 200 countries -- it boasts that it has now booked more overnight stays than the Hilton and Intercontinental hotel chains combined.

Airbnb might be a particularly disruptive new force, but it is actually just the best known of a bubbling consumer P2P rental market, that has grown to encompass everything from hiring out washing machines, to ad hoc taxi-services and car hire. US start-ups like RelayRides and Getaround, for instance, offer much the same kind of service as Hertz or Avis, but have none of the same inventory costs. They draw their sizeable fleets from the millions of cars currently sitting idle in driveways.

There’s no doubt that this under-swell of activity has provided a nice little income stream to cash-strapped people with spare assets in recessionary times. But does the “shared economy” have staying power? As fortunes pick up, punters may feel less inclined to chance their arm lending cash peer-to-peer, let alone sharing access to their Porsche.

Maybe. But some think there’s been a sea change in attitudes. “The potential is huge,” Greg McAdoo of venture capitalist Sequoia (an investor in Airbnb) told Forbes recently. “In 20 years time we won’t be able to imagine a world where we didn’t have access to things through collaborative consumption.” Rachel Botsman – a well-known evangelist of the movement – reckons that the consumer P2P market alone is already worth $26bn.

One group certainly taking the revolution seriously are those who have most to lose from it. Under pressure from local hoteliers, New York State is suing Airbnb for unpaid hotel taxes. In other industries, incumbents have attempted to close down the threat – either by buying up P2P challengers, or launching their own variants. Avis, for instance, has bought a stake in a peer-to-peer car rental rival, as have carmakers GM and Daimler.

In finance, meanwhile, Morgan Stanley has begun offering some of its wealth management clients the opportunity to invest in Lending Club loans. Other banks, including Citi, Barclays and Deutsche Bank, are also reportedly exploring how to finance or securitise peer-to-peer loans to sell on to larger investors -- an exercise in the slicing and dicing of debt packages that’s beginning to sound horribly familiar.

P2P has been hailed by some as the one positive and lasting legacy of the Great Recession. But perhaps the cynics have a point after all.