With press reports today marking yet another new market for peer-to-peer (P2P) finance—student lending—it is clear that non-bank credit provided by technology-driven companies is gaining formidable traction.  Like many other initial non-bank forays into traditional financial intermediation, P2P started small and, clocking in last year at $12 billion, is still a tiny slice of U.S. small-business and consumer lending.  Of course, that’s what a lot of banks said when PayPal first showed up.  No one’s likely to make that same mistake again, least of all Treasury, which has asked for public comment on the market-integrity and public-policy challenges should P2P—now fired up by powerful institutional investors—take off.

FedFin has reviewed Treasury’s request and believe it poses the following strategic challenges in this sector:

  • Banks contemplating P2P platforms of their own will be the first to bear both current and new regulatory costs. 
  • Conversely, banks would be strongly advantaged if non-banks came under at least some prudential regulations.  The most likely ones Treasury contemplates are risk retention for P2P loan transfers and leverage restrictions on at least some platforms.

We would be pleased to discuss these issues with you in greater depth.  FedFin has an extensive practice analyzing financial-sector business lines for comparative advantage based on disparate regulatory and legislative factors—what we call policy drivers.  We have conducted proprietary analyses of the impact of current rules in this arena, as well as of those most likely to alter financial-intermediation business flow and profitability.  To learn more, please e-mail us at info@fedfin.com.