Forget Citibank - Borrow from Bob

We've talked about peer to peer, or person to person, lending quite a bit on this blog, and here's even more. This month's Harvard Business Review has a section on Breakthrough Ideas for 2009. P2P lending made the cut. John Sviokla writes:

A profound secondary effect of the down market will be an increase in the availability of peer-to-peer finance and its convergence with traditional lending. My bet is that mainstream investors and banks will cherry-pick the best investors in Lending Club and other systems -- reducing risk by tapping their superior credit-assessment capabilities -- and fund them to grant more and bigger loans. Moreover, within five years every major bank will probably have its own peer-to-peer lending network.

If innovative legislation were drafted to allow peer-to-peer risk coverage, similar transactions might begin to flourish in the insurance market. Precise knowledge of local conditions would allow individuals to band together in order to underwrite the cost of insuring properties in safe neighborhoods or to make insurance more widely available in higher-risk neighborhoods.

The current economic constraints will only accelerate the growth of these new entities. I predict that they will be among the most important financial-services innovations in the coming decade.