How Does Direct P2P Finance Compares with Capital Markets?

“Driven by technology on the supply side and the financial crisis on the demand side, an investment revolution has begun.” Andrew Haldane, Executive Director, Bank of England

Direct finance, such as equity crowdfunding and P2P lending, as well as capital markets both act as an information bridge and conduit of financial flows between a large number of investees/borrowers and a large number of investors/lenders who receive a return for their investment. But the similarities already stop there. The design and characteristics those two marketplaces are profoundly different.

The table below attempts to illustrates differences in a simplified black and white way.

It is becoming more and more obvious that capital markets and the banking system institutionalises irresponsibility and is unsustainable. The nascent market of direct finance promises to deliver a better, intrinsically social system with embedded accountability. It reconnects people with the reality of their money and empowers them to create a world they want to see.

Direct finance is far better aligned with the real economy of the 21st century, which is increasingly decentralised. A trend which is reinforced by an growing start-up culture which is fuelled by a familiar driving force: crowdfunding. Together with complementary currencies such as digital money and other emerging innovations in particular in the payment sector one can truly say that an investment revolution is on its way.

Originally published on www.crowdvalley.com on 24/02/2014