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The Origin of American P2P Lending and How It Has Been Shaped by the
Regulatory Landscape
Poomsiri Dumrongvute
JSD, University of California Berkeley
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What is P2P Lending?
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How they do it?
• Information Technology
• Internet and Communication
• People
• Efficiency
• Biggest/most prominent Fintech
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The Dawn of American P2P Lending
• 2002: Circle Lending (Pure Facilitator)
• 2005: Kiva (Charity)
• 2005: Zopa (Marketplace UK)
• 2006: Prosper (Marketplace)
• 2007: LendingClub (Marketplace)
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P2P lending business model
• Client Account Model
• Notary Model (Borrower Payment Dependent Note)
• Marketplace Model (Institutional Investor)
• Balance Sheet Model (From the book of platform)
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Peer-to-peer Features in the Early Days
Social Network Facebook Application
Mutual Friends / shared networks
Personal Profile Soft/personal data
Unverified
Group Affiliation Borrower Group
Group Leaders
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P2P Lending vs Traditional Bank:The Socioeconomic Point of View
• Interpersonal Trust vs Institutional Trust
• Information Asymmetry• Facilitator v Delegate
• Social Capitals • Borrowers
• Trustworthy vs Creditworthy
• Lenders • Relationship vs Financial Model
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Regulatory Landscape
• Bank Regulation • Lending License (State and Federal)
• Bank Service Company Act
• Usury Regulation
• Funding Bank (FDIC insured banks in non-usury states)
• Borrower payment dependent note / Notary Model
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Regulatory Landscape
• Securities Regulation • Securities?:
• The Howey Test composes of three elements including • (1) an investment of money,
• (2) in a common enterprise, and
• (3) with an expectation of profits predominantly from the efforts of others.
• Securities Act / Securities Exchange Act • File / Disclose in advance by the platform itself
• Shelf Registration • Abandoning peer features
• Institutionalization
• Secondary Market
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Regulatory Landscape
• Other Regulations • Consumer Protections
• CFPB
• Privacy
• Tax
• Bankruptcy
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Regulatory issues
• Regulating Activities vs Entities
• Securities? : “Arguable” but so what (SEC investigation 2008)
• Lending YES >> solution = partner with bank/renting charter/ rate exportation
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Effects on the industry
• Only big players remained
• Become more like a bank• Fixed rates on loans instead of auction process
• Less interpersonal features
• Institutional Investors
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What is New for P2P lending?• Specialized P2P
• Upstart: academic variables—colleges attended, area of study, GPA, and standardized test scores
• SoFi: Alumni-funded lending model that connected students and recent graduates with alumni + academic variables
• Bigger Data/ Less traditional /Conventional• Robo-investing for platform lenders • Blockchain
• Database • Tokenized settlement system • Automated filing
• The OCC’s Fintech Charter • a special purpose national bank charter
• supervise on capital, liquidity, and risk management, financial inclusion, and contingency• exclude deposit taking • Not Practical as they still have be comply with state regulations
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How this might inform Thailand
• Infant P2P lending • A Lesson Learned
• Social features and common practices in micro finance • ROSCAs
• Regulating Activities vs Regulating Entities
• Interesting Thai enterprises: That P2P Lending platform(Balance Sheet) and Online ROSCAs
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Q&A