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I saw this post by Peter Renton at Lend Academy and thought it was something to be shared with those folks who may not have seen it. Wells Fargo has banned their employees from investing in peer to peer lending as it represents a conflict of interest. As peer to peer lending has grown it is increasingly becoming a threat to the traditional banking industry and is altering the financial balance that has existed for years.

The article (free registration required to read the article) states the following:

“Ethics administrators” at Wells Fargo decided to forbid staff from P2P lending after concluding “that for-profit peer-to-peer lending is a competitive activity that poses a conflict of interest”. Tensions between banks and peer-to-peer platforms have arisen because the P2P model cuts traditional lenders out by matching capital directly with borrowers. The juicy yields on offer have attracted investments from a range of would-be lenders, including hedge funds and private individuals.

I do feel bad for employees of Wells Fargo because while the bank makes money from Lending Club (through the Lending Club Trust Account) their employees are banned from benefiting from the platform they support. However, no matter the potential rewards of peer to peer lending, it isn’t worth losing your job to continue to invest.

Ultimately, the competition between traditional banks and the newer “upstarts” is going to continue to increase. This is the first of many interesting things to come as Lending Club continues its trek towards an IPO this year and Prosper looks on pace to become profitable. During 2013, peer to peer lending exploded in recognition and popularity. I believe 2014 will marked by the success of both Prosper and Lending Club from a profitability and industry shaking standpoint. Small business lending will be the next niche tackled and the opportunity for both investors and borrowers will be large.

As an aside, this does get me excited to continue following along with Lending Club as they work towards their IPO. A possible candidate for a small growth position perhaps… and of course, I won’t stop investing!

What are your thoughts on those folks now banned from peer to peer lending? How disruptive will peer to peer lending be for traditional banks?

Flickr: Gareth Simpson