A person I met online came to me asking for $200. He said he needed it to pay for a very important bill and he will pay it back on Monday. He also said he wouldn't be able to provide any liquid collateral, but he could send me pictures of his driver's license and SSN. How do I lend him money safely?
I know a way to do it is to create a contact and have it notarized, but once again, I met him online, so that is impossible. I want to help him out, but I can't afford to lose $200.
If you can't afford to lose it, you can't afford to lend it. Even if it was someone you knew well and not a relative stranger on the internet there's a fair chance you won't get repaid.
That doesn't mean you shouldn't help people financially when you feel compelled to do so, it just means you need to do so with the understanding that you might be out some/all of that money and you should also think through how that will impact your relationship with the person.
Collateral certainly decreases/eliminates the chances of you coming up short but it's also telling the person that you don't trust them much, and as you mentioned in this case is not an option.
Regarding your comment about a simple contract being sufficient, legally yes (most likely), and you can find free loan agreement templates online, but probably not worth the cost/effort to try to go to small claims court to collect, especially if they live in a different state. Proving a debt exists can be much easier than collecting on the debt.
You can refer the person to this Reddit site. There people providing loans are willing to accept a small risk of defaults, because they make huge profits from the interest on loans.
The idea is that someone asking for a loan of $200 will be willing to pay back $220, because $20 is in absolute terms a very small amount of money. Payback time is typically within one month. So, if you loan $200 to 500 people, you'd earn $10,000 per month if everyone would pay the loan back with the agreed interest. However, about 2% will default, but with 490 people paying you $220 your profit will still be $7800.
