What a load of Bankers


Currently, as students it is unlikely that we will be able to finance lending a lump-sum to some random individual. However, the chances are that you may have taken a loan from a bank or family member at some point. Would you ever imagine yourself borrowing from a random individual?

P2P lending and borrowing is growing within the financial technology area – or fintech as it often goes by. The fundamental idea behind P2P is taking the middleman out of the process and thereby reducing various costs. In the cases of lending and borrowing, multiple firms offer the option for the two parties involved in the transaction to agree upon their own terms and rates of the loans. This is great for both the loaner (who gets the chance to earn money and gain a return from their ‘investment’) and the loanee (who is hopeful of getting a better deal that what many of the banks are offer, especially in the current circumstances). [1]

Currently there aren’t yet any players or firms which are dominating this industry yet many of them are valued ridiculously high. However, competition may arise from companies such as TransferWise, who are currently operating through providing minimal fees for individuals to send money to a bank in a different currency, for example, from Pound Sterling to Euro. This idea, generated by the creators of Skype and backed by Richard Branson may be the start of moving money transactions away from mobile banking to other sorts of third party applications. [2]

As you can see, in addition to the rapid growth of the fintech area and what seems to be the goal of beating the middleman, does the future of banks look vulnerable? Do these start-ups pose any threat or are the banks just too big and powerful? Do they even care about these revenue generation sources? Why aren’t they doing something about it? What can they do?

Sources:

[1] http://www.creditsesame.com/blog/what-is-peer-to-peer-lending-and-how-does-it-work/

[2] http://www.telegraph.co.uk/sponsored/finance/money-transfers/11435428/how-does-transferwise-work.html

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5 responses to “What a load of Bankers”

  1. 342947db says :

    Purely looking at the P2P lending and borrowing, I don’t think that this is going to be any serious threat to banks. Although P2P may in some cases be very useful, the method is not without its disadvantages as the lender has very little assurance that the borrower will repay their loan. Especially when you take into account that traditional financial intermediaries may have already rejected this loan due to a high likelihood of default. Furthermore, I think P2P will be more expensive than traditional loans due to the higher risks and thus higher interest rates demanded by the lenders.

  2. Fabian Dekker (332721fd) says :

    I do not believe that P2P lending and borrowing would actually drive banks out of business, but it could be a serious thread to companies that provide short term loans to consumers such as Ferratum (https://www.saldodipje.nl). These companies typically lend small amounts up to € 1.000 easily, without extensive paperwork, but with high interest rates (14%).

    P2P lending and borrowing could become a thread for these companies, because of two factors. First of all, the rationale for borrowing money can be articulated by the borrowers to the lenders. As we see in crowdfunding, money providers are often willing to lend money if the rationale interests them. They do care about the pay-off, but this is not their primary driver, so they will ask for lower interest rates. This, as opposed to traditional short term loan providers.

    Secondly, this platform could also be used as a safer way to borrow from friends and family. Because all the necessary conditions to facilitate a loan properly are presented and incorporated in the system, the treashold for lending from your direct network could be lower. This obviously declines the need for traditional short term loan providers.

    I am not sure though to what extend the borrower has to provide information about his/her liquidity. I believe that apart from showing fulfillment of previous loan obligations (credit history), salary and other financial related information should be provided to make this a success.

  3. Dennis Oliver Huisman says :

    Hi Tom,

    Interesting post. The emergence of new models for lending are having their effect on banking. Recently, I read a McKinsey & Company report on the not-so-promising future for banking. You can find it here: http://www.ft.com/intl/cms/s/0/a5cafe92-66bf-11e5-97d0-1456a776a4f5.html#axzz3ngqF7wBR

    It appears to be that the emergence of ease in communications and IT-enabled finance solutions are having their toll on established methods for loans and other financial services for consumers. Will this also present an opportunity for potential start-ups based on-line?

    Cheers.

  4. tomhendry12 says :

    342947db and Fabian, I pretty much totally agree with you in saying that in general banks have to many other means of revenue generations and such, due to the reasons you mentioned. On the contrary, I would be interested in viewing the article you mentioned @liberumservices as this I see that this is likely provide an alternative view. However, I do not seem to be able to access it as I am not a member of financial times, is there any other way to access it or do you have a similar article? Thanks in advance!

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