A curious case of the return of the medieval system of barter

... or four reasons why P2P can sink into oblivion (at least in its current form).

Long before the development and subsequent monopoly of the banking industry, most financial transactions were conducted between people directly. In the middle of the 15th century, thanks to the appearance of the first banks, people received a new way to conduct monetary transactions. However, in recent years, everything goes to the fact that we are again returning to a private exchange. Payments (regardless of currency) from one person to another are relevant again, only in a different form.
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The era of P2P, the cattle and poultry market of the 21st century, has arrived.
Simply put, P2P is an online technology that allows a user to quickly transfer funds from their bank account or credit card to another person’s personal account via the Internet or mobile.

Credit cards are not popular in Europe due to low interest rates, the size of which has developed historically. In the search for an alternative solution, the world has become mad with P2P technology. For example, medium-sized and large businesses, in which banks often slam doors (sometimes literally), are eyeing P2P platforms.

P2P platforms double assets every nine months, showing rapid growth. New technology provides high speed and efficiency compared to traditional lenders. Due to its effectiveness, P2P is gaining increasing popularity. The leaders here are the companies M-Pesa and bKash, which stand out among other firms with well-thought-out algorithms, personifying the evolution of the financial exchange. Like the rapidly growing Uber and AirBnB services that are changing the taxi and hotel business markets, Lending Club, SoFi, Funding Circle and others do the same in financial transactions.

The emergence of P2P has attracted so much attention that even Facebook and Google have provided users with the ability to easily transfer money to other users. To transfer money, you do not need anything but the actual accounts. Availability and instant transaction are the benefits of P2P that appeal to the user.

Even financial giants (for example, Citigroup) benefit from their investments in P2P lending. The new technology provides lower operating costs (about 3% when using P2P compared to 7% of banks), in addition, they are free from banking regulation, which makes the search for an investor even more difficult.
If you have access to a user base in a cellular network, then you have access to payment transactions. Everything is so simple - it would seem, what could go wrong?
And really, what?

1. P2P can not always remain unregulated technology.
If regulators have not paid attention to P2P so far, this does not mean that it will continue this way. But at least now the P2P market is free to use new methods.
2. In the P2P technology there are also pitfalls - as in the banking industry.
P2P should not be seen as a miracle in the world of commercial activity. There is a good chance that the benefits of P2P will ultimately lead to its collapse. Problems can arise when P2P lenders start borrowing funds from other P2P lenders to cover their own debts, forcing regulators to intervene to avoid unintended consequences.
3. Lack of security .
There is no doubt that people will try to find opportunities in order to illegally gain the benefits of P2P technology, as in any other payment system where criminals have already mastered the money fraud.
4. P2P technology can be unstable and simply collapse .
Given the lack of strict local verification systems, some P2P platforms allow bankrupts and other entities to slip past established rules, making it vulnerable to defaulters.

Summarizing the above, users are increasingly choosing P2P technology, and banks may need to change their way of thinking in order to compete with new fintech companies. But this is another topic for discussion.

Trade has evolved from the “private person – seller” relationship to the broader “private person – private person” exchange method. The only question is whether these changes will be strengthened, or will the banking industry return its influence with the next turn of the wheel of time.

Author: Ilya Aristov, expert on technological innovation in FinServ