Peer to Peer Online Lending
Much money has been thrown into online lending. Some have described it as the financial “Uber”; trying for financial disintermediation in the staid banking industry.
One goes online to one of many sites, fills out an application, and by the magic of algorithms gets a fast loan approval. Pieces of the loans are then offered to investors, both individuals and institutions. I was thinking that TABASFUNDING might like to be an investor, but I found the decision window too short- actually one has to decide immediately whether to buy. I guess they expect you to decide by algorithms as well. I also found the request for personal information from me as an investor too intrusive.
But maybe you can’t know everything with algorithms. It turns out that the San Bernardino terrorists were approved for a $28,000 loan by one of the online lenders. Allegedly some of the money went to buy the arms and ammunition used in the horrific incident.
US Regulators are taking stock of what to do to respond. From my point of view, what’s missing is what we learned and taught as community bankers: “Know Your Customer.” I like to do business with people in the area that I can get to know. There are certainly some improvements that can be made to strengthen safeguards in online lending, but I am not sure that you can get to know someone with algorithms.