A Short History of Peer to Peer Lending

Through my blog, Peer to Peer Lending Blog, I talk to many people new to P2P lending. I think for many people it’s one of those new areas of finance, like bitcoin, that you hear in the background but never have the time to explore. So, I’ve decided to write a short introduction to how it all began.

What is Peer to Peer Lending?

To start with, what exactly is peer to peer lending? Is it just a fancy name for a type of ponzi scheme?

Essentially, it involves lending directly from people to borrowers: either consumers or businesses. The idea is that by cutting out the middleman’s margins gives a better return to investors and a lower interest rate for borrowers.

The Early Days

Most would say that P2P lending as we know it began with Zopa in the UK at the start of 2005. However it could be argued that the origins lie in P2P file sharing services like Napster or Limewire at the start of the noughties. With P2P music sharing there was a movement to cut out the middleman which led to technical innovation and change in the entire industy, to leave us with the likes of Spotify.

Zopa comes from the words ‘Zone of Principle Agreement’. In the United States, Prosper followed a year later in 2006.


Today Peer to Peer Lending is multi-billion pound industry in the UK alone. It can probably be classified into four loose categories:

  • Equity Crowdfunding
  • P2P Business Lending (P2B)
  • Invoice Trading
  • P2P Consumer Lending

The lines continue to blur between traditional finance and peer to peer lending. Does it stop being P2P if institutions monopolise the debt purchases?

A report by the European Credit Research Institute (ECRI) in 2016 argued that:

P2P lending is fundamentally complementary to, and not competitive with conventional banking. This argument is based on our view that the fundamental core of most bank business models is the provision of liquidity services.