In practice, peer-to-peer banking is an online system enabling direct financial transactions between individuals through an auction-style process, where members can offer or request loans at specified amounts and interest rates Borrowers can search for loans that meet their needs in terms of amount and interest rate.
The system categorizes all members by risk level and allows them to browse potential lenders or borrowers based on various demographic factors.
[1][2] Unlike conventional banking where the spread between deposit rates and lending rates is consumed to finance the bank's administrative and logistic expenses, both lenders and borrowers get to save on such costs while paying certain commissions to the P2P portal provider and/or the credit rating agency.
Proponents suggest that P2P banking and financing could accelerate renewable energy development by more equitably distributing investment returns.
[3] These concepts have now been instituted by Energy in Common and Kiva in their green funds.