THIS week marks the fourth anniversary of the Great British Recession (the first one, that is), and things are not looking great.

A triple-dip recession is still a possibility, and austerity measures, rising inflation and eye-watering energy bills are keeping the majority of us on a financial knife-edge.

Most of us still blame the banks for getting us into this mess to begin with, and yet we keep trusting them with our life savings, pension funds and debts.

But, over the past few years, a new kind of social banking has been emerging, allowing savers and borrowers to bypass the banks entirely.

Peer-to-peer (P2P) lenders such as zopa.com, ratesetter.

com and fundingcircle.com have been quietly winning a following by offering investor returns of up to nine per cent per year, and personal loans for as little as 6.8 per cent APR.

The sites have been phenomenally popular. Rate- Setter has matched £51m in loans since its launch in late 2010 and, at the time of writing, market-leader Zopa had matched more than £265m, while Funding Circle had raised nearly £73m.

Last year, financier Lord Rothschild made an undisclosed investment in Zopa, predicting that P2P lending will develop on a significant scale to become a major threat to high street banks.

How it works P2P lending is banking at its most basic. If you have money to lend, you put it in a pot where borrowers can apply to access it.

An interest rate is agreed and repayment terms are set, so the lender makes a return on the initial investment and the borrower gets their loan.

By cutting out the banks, P2P sites can offer competitive rates to both parties.

RateSetter currently offers lenders 2.4 per cent on a monthly basis, 3.3 per cent over one year, five per cent over three years and 5.9 per cent on a five-year investment.

Zopa offers investors a return of between 5.4 per cent and 9.3 per cent, depending on the risk profile of the borrower and the term of the investment, while Funding Circle offers investors an average gross yield of 8.9 per cent.

What are the risks?

AS with any transaction, the main risk is that, as a lender, you won’t get your money back. P2P sites try to offset the risk by imposing strict criteria on potential borrowers.

RateSetter has established a £776,511 Provision Fund, where cash assets are held separately and used to repay lenders when borrowers are unable to meet their debts.

The sites are also ruthless when it comes to borrowers – only about 12 in every 100 loan applicants will be accepted, meaning that potential borrowers must have the highest credit ratings possible.

However, the result is that the bad loan rate for P2P lenders is only about one per cent, compared with a three per cent risk in high street banks.

There is also the possibility that the company itself might go under. Quackle launched in November 2010 as a highyield P2P site, offering lender returns of up to 25 per cent per year. However, its business model was seriously flawed, and the company closed just over a year later.

Lack of regulation has also been a concern. The three main P2P lenders have been campaigning for years for formal recognition by the FSA, and seem to have succeeded.

The FSA recently announced the formation of a Financial Conduct Authority to assume regulatory control over P2P lenders, although the terms have not yet been made clear. In the meantime, the industry is self-regulated.

All in all, P2P lending appears to be entering the mainstream.

At the very least, it may encourage the high street banks to up their game.