Peer-to-peer lending

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Peer-to-peer lending is a means by which borrowers and lenders may transact business without the traditional intermediaries, such as banks. It can also be known as Social Lending. The ripple monetary system is a software project based on a similar idea. An enabling technology for peer-to-peer lending has been the internet, where peer-to-peer lending appears in two primary variations: an "online marketplace" model and a "family and friend" model.

The marketplace model of peer-to-peer lending on the internet enables peer lenders to locate peer borrowers and vice-versa. This model connects borrowers with lenders through an auction-like process in which the lender willing to provide the lowest interest rate "wins" the borrower's loan. The marketplace process may include other intermediaries who package and resell the loans. [1], but the loans are ultimately sold to individuals or pools of individuals.

The "family and friend" model foregoes the auction-like process entirely and concentrates on borrowers and lenders who already know each other, as with two friends or business colleagues formalizing a personal loan. Whereas the primary benefit of the marketplace model is the "match making" aspect, the family and friend model emphasizes online collaboration, loan formalization and servicing.