The Fintechs Are Banks Now

If you are going to securitize bank loans, you will need a bank. You don’t need to be a bank, but you will need a bank to make the loans and assign them to you for securitization.1 If you are going to securitize bank loans and call them “peer-to-peer” loans—someone borrowed the money, someone else provided the money, maybe they’re peers, why not—then you will also need a bank. I suppose there may have been a brief period when people imagined that they’d just set up an online marketplace where people with money could lend it to people who need money, on a purely decentralized peer-to-peer basis, but actually existing peer-to-peer lending companies are in the business of (1) connecting individual borrowers to banks, (2) buying those loans from the banks, and (3) selling those loans to investors.

The reasons for this are essentially regulatory: U.S. law prefers personal loans made by banks and disfavors personal loans made by other companies, and is mostly pretty flexible about what happens a second before and a second after the loan is made.2 So if you are a financial technology company you can build the website that markets and explains loans to people, and you can connect people to banks to get the loans, and you can buy the loans from the banks, and you can effectively be the entire consumer front-end and the entire financial back-end, but in the middle everything has to flow through a bank for a second to get the bank’s blessing.