IntroductionAccording to the European Credit Research Institute, the term ‘peer-to-peer’ (P2P) describes the interaction between two parties without the need for a central intermediary. The term originated in the field of computer networking, to describe a network where any one computer can act as either a client or a server to other computers on the network without having to connect to a centralised server (A. Milne and P. Parboteeah, 2016). Peer-to-peer lending is used to describe online marketplaces where lenders (also referred interchangeably as investors) can lend to individuals or small businesses (A. Mateescu, 2015). Peer-to-peer lending activities have grown exponentially since the concept launched. For instance, from 2015 to 2016, P2P lending activities went up by 39%, from £2.3bn to £3.2bn (Bondmason, 2017).Over the years, both lenders and borrowers have endeavoured towards the possibilities of fundamentally disrupting and disintermediating existential financial links, distancing themselves from the financial main, and building new financial operators.Many point out that P2P lending can pose a significant threat to traditional financial and banking institutions because of the benefits that it presents. These include: comparably low interest margins due to their low managerial costs and because the platforms do not themselves assume any risk vulnerability; the potential to make loans to customers who may have been rejected for loans by established banks; and their revolutionary use of technology to provide much greater transparency, versatility, and more support to clients. In this essay, History of P2P LendingThe first ever company that provided P2P loans in the world was Zopa in 2005, and has netted £1.99 bn in loans ever since (Zopa, 2017). Zopa was described by the New York Times as “one of the world’s first Web sites that aims to directly bring together borrowers and savers, cutting out financial institutions from the lending process” (J. Werdigier, 2012). Zopa was closely followed by the US-based Prosper in 2006, whose creator, Chris Larsen, described it as an “eBay for Credit” (Business Wire, 2006).Growth in P2P activitiesJames Meekings, co-founder and managing director of Funding Circle, affirmed that “since Funding Circle launched, investors have earned an average of 6.5% a year and £116m of net interest” (M. Brignall, 2017). Nevertheless, there are many cases where people have Is P2P lending a threat to banks?In the United Kingdom, in April 2016, it was announced that investment in P2P-lending platforms could be put on an Individual Savings Accounts (ISAs) – which allows individuals to earn tax-free interest on P2P lending returns. The annual limit for this ISA was $15,240 and you can only hold one P2P ISA, which means that you cannot spread your ISA to different platforms that you have in your diversified portfolio, and it only applies to new money invested in P2P lending, which means that existing money is not eligible. Consequently, many estimated that the number of P2P transactions could escalate to a value of £45 bn in the following years.P2P loans are not protected by the Financial Services Compensation Scheme, and lenders’ capital is at risk. The sector is regulated by the Financial Conduct Authority and many providers operate reserve funds to protect the investor in the event of a borrower defaulting on their repayment.Lending through an IF ISA also helps provide much needed support to the UK’s 5.2 million small and medium-sized business , many of them were let down by the banks. The Financial Services Compensation Scheme (FSCS) provides security for up to £75,000 per bank per saver – only in the UK-. In the UK, problems with subprime loans have urged government officials to make sure there is additional legislative measures taken to institute the minimum capital standard.Another advantage of P2P lending is that lenders, also known as investors, can select which types of customers they want to make loans to. Prosper, one of the first P2P lending companies, gives borrowers credit grades (“AA,” “A,” “B,” “C,” “D,” “E” and “HR”) in which lenders observe and get to invest in the loan they wish.However, the main feature of banks that attracts so many customers is the provision of liquidity. Customers have every right to draw deposits from their banks, either by withdrawing cash or by using a bank payment instrument. Currently, what makes most people choose traditional banking institutions instead of P2P services is their liquidity services. Banks have traditionally provided liquidity insurance in the form of loan commitments to many classes of borrowers, as well as liquidity insurance. Clients accept lower rates of return on investments and higher costs of borrowing money.The experience of P2P platforms from both the US and the UK points out that it has been much easier to persuade borrowers, rather than depositors, to participate in P2P lending activities. As a result, these platforms have had to appeal to institutional investors in order to maintain this increase in P2P loans.The degree to which peer-to-peer lending programmes are triumphant in capturing credit activity relies on meeting the challenges of amending and enhancing current business processes, including the adoption of technological standards, so as to support this different form of intermediation and only to much more confined extent on exploiting high-tech innovation. I expect that banks will either work side by side with third-party P2P institutions- this is the case in many countries- or offer their own platforms, in order to provide both loan and investment services to their clients.