Peer-to-peer banking, frequently referred to in
blockchain
The blockchain is a distributed ledger with growing lists of Record (computer science), records (''blocks'') that are securely linked together via Cryptographic hash function, cryptographic hashes. Each block contains a cryptographic hash of th ...
-based finance, refers to the transfer of value without traditional intermediaries like banks.
In the modern era and engrained within current practices, peer-to-peer banking is an
online
In computer technology and telecommunications, online indicates a state of connectivity, and offline indicates a disconnected state. In modern terminology, this usually refers to an Internet connection, but (especially when expressed as "on lin ...
system enabling direct financial
transactions between individuals through an
auction
An auction is usually a process of Trade, buying and selling Good (economics), goods or Service (economics), services by offering them up for Bidding, bids, taking bids, and then selling the item to the highest bidder or buying the item from th ...
-style process, where members can offer or request
loans
In finance, a loan is the tender of money by one party to another with an agreement to pay it back. The recipient, or borrower, incurs a debt and is usually required to pay interest for the use of the money.
The document evidencing the debt ( ...
at specified amounts and interest rates. P2P banking principles vary depending upon historical contexts and incidents.
Definition in the traditional banking
Borrowers can search for loans that meet their needs in terms of amount and interest rate. The system categorizes all members by
risk
In simple terms, risk is the possibility of something bad happening. Risk involves uncertainty about the effects/implications of an activity with respect to something that humans value (such as health, well-being, wealth, property or the environ ...
level and allows them to browse potential lenders or borrowers based on various
demographic
Demography () is the statistics, statistical study of human populations: their size, composition (e.g., ethnic group, age), and how they change through the interplay of fertility (births), mortality (deaths), and migration.
Demographic analy ...
factors.
Since P2P banking does not use third-party banking institution intermediaries the rates and terms are often much more favourable for the members.
Unlike conventional banking where the spread between deposit rates and lending rates is consumed to finance the bank's administrative and logistic expenses, both lenders and borrowers get to save on such costs while paying certain commissions to the P2P portal provider and/or the
credit rating agency
A credit rating agency (CRA, also called a ratings service) is a company that assigns credit ratings, which rate a debtor's ability to pay back debt by making timely principal and interest payments and the likelihood of default. An agency may ra ...
.
Proponents suggest that P2P banking and financing could accelerate
renewable energy
Renewable energy (also called green energy) is energy made from renewable resource, renewable natural resources that are replenished on a human lifetime, human timescale. The most widely used renewable energy types are solar energy, wind pow ...
development by more equitably distributing
investment returns.
[ K. Branker, E. Shackles, J. M. Pearce, ]
Peer-to-Peer Financing Mechanisms to Accelerate Renewable Energy Deployment
''The Journal of Sustainable Finance & Investment'' 1(2), pp. 138-155 (2011). These concepts have now been instituted by
Energy in Common and
Kiva in their green funds.
Old models
The following two pictures show the difference between the peer to peer banking approach and the normal way with a financial institute.
File:Traditional_banking_model_simplified.png, Traditional banking model (simplified)
File:Peer_to_peer_banking_simplified.png, Peer to peer banking model (simplified)
See also
*
LendingClub
*
Peer-to-peer
Peer-to-peer (P2P) computing or networking is a distributed application architecture that partitions tasks or workloads between peers. Peers are equally privileged, equipotent participants in the network, forming a peer-to-peer network of Node ...
*
Social peer-to-peer processes
Peer-to-peer (P2P) computing or networking is a distributed application architecture that partitions tasks or workloads between peers. Peers are equally privileged, equipotent participants in the network, forming a peer-to-peer network of nod ...
*
Peer-to-peer lending
Peer-to-peer lending, also abbreviated as P2P lending, is the practice of loan, lending money to individuals or businesses through online services that match lenders with borrowers. Peer-to-peer lending companies often offer their services online ...
References
{{DEFAULTSORT:Peer-To-Peer Banking
Banking
Peer-to-peer