Credit Unions: Reinvent P2P Lending

by Snarketing 2.0

by. Ron Shevlin

Some university professors recently researched the effect of personal relationships on P2P lending platforms. They discovered three “effects”:

  • Pipe effect. Friends of a borrower, especially close and off-line friends, act as financial “pipes” by lending money to the borrower.
  • Social herding effect. When friends of a potential lender, especially close friends, place a bid, a “social herding” effect occurs as the potential lender is likely to follow with a bid.
  • Prism effect. A friend’s endorsements via partially funding a loan reflects negatively (i.e., becomes a “prism”) on the value of the loan to a third party.

What the study shows is that the volume and patterns of lending and borrowing are influenced by, and strengthened by, the extent of the relationship between participating borrowers and lenders.

My take: Credit unions (and community banks) should interpret these findings to find ways of introducing P2P lending-type practices into their lending processes.

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