Data and Society is a think/do tank in New York City, initially funded by Microsoft and supported today by prominent organizations such as The Ford Foundation, Omidyar Network, and the Bill and Melinda Gates Foundation. The team and an impressive group of Fellows (some of them faculty on sabbatical from their universities) take on the thorniest challenges in our increasingly data-driven society. Here you find lively debates on the ethics of predictive analytics, whether Facebook is a media company that should manage news feeds in the public interest, and more.
Earlier this month, the team published a paper on one of my favorite topics Peer-to-Peer Lending. It’s a comprehensive overview of how this less than 10 year old industry has evolved. All of them as originally venture-backed startups launched with promises of fast lending thanks to technology and “disintermediation,” financial inclusion for many who would not otherwise qualify, and greater transparency in the lending process. All this sounded even better in the wake of the 2008 financial crisis and regulated banks tightening credit.
The reality is a bit different. Or at least it is a different landscape today. Whereas these communities once boasted individual lenders who would pick and choose from prospective borrowers (several options exist for consumers as well as small businesses), the paper explains that: “the majority of peer-to-peer loans are purchased by large investors like banks, hedge funds, and wealth management firms. The promise of disintermediation, or removing the banks from the equation, has given way to a wide array of intermediaries, including but not limited to banks.”
And what about efficiency, inclusion and transparency? Speed still characterizes lending decisions on these platforms but it appears that promise of greater transparency is mostly for lenders, i.e., the ability to compare loan payment performance. In a true peer-to-peer market, that would not be so problematic but given what we now know about lenders, it’s just more clout for an industry that already had considerable power.
This is my concern–whether or not peer-to-peer lending was a model that could last, those promises were really important. I do believe that technology can deliver on them but it does require another round of re-imagination. One that is at least a little more impervious to the return of the intermediaries.