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The Final Frontier in Peer-to-Peer Lending

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The past decade has seen the rise of peer-to-peer lending in the mainstream. Prosper and Lending Club were the first on the scene with their innovative technology that connects borrowers and investors. The peer-to-peer lending space has seen monumental growth since then, peaking at $3.5B in loans by the year 2015.

Throughout this period of growth, one subset of consumers has been long forgotten; those with bad credit history who desire a short-term payday loan to meet their needs for emergency funds until their next paycheck. Unfortunately, this is a group of consumers that has been completely disregarded by major financial and credit institutions from the beginning of time.

peer to peer lending investing

Online Lending and the Dark Past

Beginning in the late ’90s, many shady online lenders set up shop to cater to these borrowers by hosting their servers overseas and outside of the jurisdiction of local, state, tribal, and federal entities.

Unfortunately, many of these lenders used unfair and deceptive practices. Some of these practices included charging a “renewal” fee that would trick borrowers into believing they were paying off the principal of a loan, or threatening borrowers with criminal prosecution or arrest if they were unable to pay.

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In the end, consumers with bad credit still flock to these shady lenders because they are desperate for a payday advance. Regardless of what happens to these lenders in the future, borrowers with no credit, bad credit, bankruptcies, or other major red flags will still seek out credit to make ends meet.

Peer-to-Peer Lending for Payday Loans in California

One lender is seeking to disrupt this industry. USA Express Loans is a California-based and licensed lender that saw the need to democratize the process of high-risk, subprime short-term lending. They are currently developing a peer-to-peer network specifically catered to $255 payday loans online in California.

Their goal is simple; to connect small-time investors with regular borrowers who are in need of cash. Borrowers will be able to fill out a simple, five-minute application with their information. USA Express Loans will complete an initial underwriting process that will verify their identity, source of income, employment, and other critical information to protect against fraud. After a borrower passes this initial screening (it all happens in real-time), their loan request will be posted to a portal where regular non-institutional investors will have access. Sensitive information including names, addresses, bank details, or the name of the borrower’s employer would not be shown on this portal.

However, investors will be able to see the job title of a borrower, their monthly income, debt-to-income ratio, and other pertinent non-sensitive information to allow them to make a decision on what rate they are willing to lend their money at. In a matter of seconds, an investor will be able to fund a portion of a loan in increments of $10.

As with any major venture, there are a variety of logistics and regulatory hurdles that must be overcome. USA Express Loans’ Chief Technology Officer, Jeffrey Martinez, explained that they plan to work with the California Department of Business Oversight (the regulatory agency for deferred deposit transaction loans in California), the Securities Exchange Commission, and the Consumer Financial Protection Bureau to ensure all regulatory requirements are met. “If necessary, we will also work with our legislators to amend the law in order to fit the design of our lending platform”, Jeffrey explained. “It’s our intention that this unique system will bring about untold benefits to consumers by providing them with access to short-term payday loans online at a lower interest rate than usual, and with clearly defined terms for repayment. Our platform will allow investors with as little as $10 to start funding loans to their peers.”

peer to peer loans

The Future of Peer-to-Peer Lending

As the sharing economy grows, it is this author’s belief that it will continue to disrupt industries that have been traditionally gripped by institutions of the past. For example, we’ve seen front and center how Uber and Lyft transformed the taxi industry and made transportation affordable and accessible again.

Many people assumed that the sharing economy’s solution to lending started and began with Lending Club and Prosper, but the reality is that many untapped markets exist for the expansion of peer-to-peer lending; The future is bright for peer-to-peer lending. Savvy investors should keep their eyes and ears open for new opportunities to make money in this growing sector.

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