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Peer-to-Peer Lending and the Future of Cooperation

The peer-to-peer lending market has major disruptive potential within financial services. Developing a strategy to embrace, adapt to, or defend against peer-to-peer lending will be a necessary step for all credit unions within the next five years.

Executive Summary 

An entrepreneur born in 1990 has grown up in quite a different world than one born in 1960. Imagine a person born in 1960 opening a restaurant in 1985. She would have relied on traditional outlets such as banks, credit unions, and investors for business capital—unless the venture was self-funded. Many industries in 2015 would be mostly unrecognizable to an observer from 1985, from retail to entertainment to travel. The funding industry is no exception.

Today’s 25-year-old entrepreneur is living in a new era of lending where traditional institutions are competing with new alternatives. Instead of going to a bank or credit union for business capital, the 25-year-old entrepreneur can turn to online-enabled crowdfunding platforms. These platforms allow large numbers of people, often strangers, to pool their financial resources to achieve common goals and finance everything from new consumer products to feature-length films, charitable causes, and, most recently, consumer loans. There are thousands of crowdfunding platforms, each using a unique business model and financing strategy and targeting a different and increasingly specific niche.

To the 25-year-old born in 1960 this approach would seem completely alien. However, a 25-year-old credit union pioneer born in 1890 would find the mutual aid principles and peer support underpinning the crowdfunding concept astonishingly familiar.