• Will White, Commercial Director at investUP


• 01:00 am
retail banking

There’s a curious “truth” doing the rounds in the peer-to-peer sector. It goes something like this:

Institutional money has arrived in crowdfunding big time. This is a fantastic endorsement of this growing sector. The future will be more institutional money enabling more sector growth. This is brilliant, if bittersweet. It will enable peer-to-peer to become the premier way for companies and individuals to borrow, but retail investors will get squeezed out in the process.

I agree with everything right up until the “but”. Institutional money is brilliant. It legitimises this fantastic UK growth story. It will be instrumental in enabling peer-to-peer lending to fulfil it’s potential, but it is not the end of retail investors in the sector.

Here’s why. Peer-to-peer lending is about taking the bank out of retail banking. However banking, retail or otherwise, has strong lessons for the sector. At first principles, you’d never run a retail bank with either retail deposits or interbank lines only. You'd blend the two, because they provide diversity to the capital you can lend, reducing your operational risk. Whilst not all were retail banks, the bail out and bankruptcy stars of 2008 proved definitively that relying largely or entirely on interbank lending was a bad idea - Look no further than Dexia or Lehman Brothers for examples.

And keeping retail peer-to-peer investors involved isn’t just about dry operational risk mitigation. We’re all in crowdfunding because we genuinely believe democratic investment will make the future better than the past. Call us naive, but it's true. It provides people and companies better access the capital they need to grow at one end. At the other the concept shouts a positive statement that we don’t believe in the myth of financial gatekeeper geniuses. We trust human beings to make the right decisions for themselves with the best tools and information available to them. Crowdfunding, peer-to-peer lending included, is a glowing positive statement that we believe in human beings' ability to think for themselves as individuals. That’s a beautiful thing in my book.

So why is the “truth” doing the rounds? The reality is that keeping retail investors engaged in peer-to-peer lending, whilst institutional money boosts the sector, is going to be hard, but not impossible. There’s a critical difference. There are conceptually easy, but technologically hard things around choice, liquidity and information that need to be solved to enable mass retail adoption of peer-to-peer. We at investUP, the world’s first crowdfunding supermarket, find these challenges seriously exciting and are on and the mission to help enhance peer-to-peer lending a retail investment option.