**Peer-to-peer lending** is a model where individuals (or small institutions) fund loans directly to other individuals or businesses through a platform that handles underwriting, payments, and reporting - wikipedia 
The promise is simple: cut out parts of the traditional bank stack, connect capital to borrowers more efficiently, and share returns with the people providing the money - wikipedia
# What Went Wrong in the First Wave The first big wave of P2P platforms taught everyone the same hard lessons: - Credit risk is real and can spike suddenly in recessions. - Liquidity risk is real because most P2P loans are illiquid even when a “secondary market” exists. - Platform risk is real because investors are exposed to the operational health of the intermediary. - Incentive risk is real when platforms are paid to originate volume rather than maintain loan quality over time.
A separate problem was marketing language. Some platforms and promotions encouraged people to think of P2P as “safe” or “like a savings product,” when it is fundamentally an investment that can lose money, especially if diversification is poor or underwriting drifts - fca.org.uk
# What The Better Modern Platforms Changed The best modern examples did not magically eliminate risk. They changed the contract with reality by tightening underwriting, improving disclosures, increasing friction for unsuitable investors, hardening platform resilience, and accepting that retail P2P is not always the right product for every market or every cycle.
In the UK, regulators pushed the sector toward clearer risk warnings, “positive frictions” like cooling-off periods, better appropriateness tests, and fewer gimmicks designed to nudge impulsive investing. That regulatory pressure is part of how the industry “learned,” even when platforms would not have chosen the same constraints on their own - fca.org.uk - fca.org.uk
# Example: Zopa’s Evolution
Zopa is one of the clearest “learning arcs” in modern P2P history. It helped pioneer consumer P2P lending in the UK, then pursued a banking licence and ultimately closed its P2P lending side to focus on operating as a regulated bank, where customer deposits can be protected by the UK deposit guarantee scheme rather than exposed to P2P investment risk. That trajectory is one answer to the question “what happens after P2P grows up” - zopa.com - ig.com
# Example: Funding Circle’s Retail Retreat Funding Circle is a useful example of another kind of learning: segmentation. After the pandemic period and changing market conditions, Funding Circle permanently closed new lending for retail investors in the UK, while continuing to manage existing portfolios and focusing on other funding channels.
The takeaway is not “P2P failed,” but “retail P2P is fragile when macro conditions and regulatory constraints change,” so platforms often migrate toward institutional funding or different structures - fundingcircle.com - fundingcircle.com
# Example: Kiva’s Social-Lending Model Kiva is not a for-profit “earn yield” P2P platform, but it is one of the strongest modern examples of learning from P2P fragility by changing incentives.
Kiva lenders typically do not earn interest, and Kiva uses field partners, credit limits, monitoring, and published due diligence processes to manage risk and align the platform with social outcomes rather than yield marketing.
This does not remove risk, but it reframes participation as impact-first and makes the risk management legible - kiva.org - kiva.org - ucsd.edu
# The “So What” For New Designs If you are designing a new peer-to-peer or club-to-club funding mechanism today, the best lessons to steal are boring ones. - Match the product to the participant’s risk tolerance. Build strong disclosure and friction into the default journey. - Separate operational failure from investor loss where possible. - Diversify automatically. - Treat “platform risk” as a first-class threat model. And assume that some percentage of loans or projects will fail, so sustainability comes from portfolio design rather than insisting every individual bet must succeed.
In other words, the most modern form of P2P is less about speed and more about governance, transparency, and refusing to pretend away uncertainty.