Citizen Banking
Discussion
MacGregor Campbell:
"Lending Club CEO Renaud LaPlanche says that if his company sustains its current growth rate, then within seven years it will be bigger than Citibank, one of the largest banks in the US. The American Bankers Association, perhaps predictably, dismissed this idea, saying P2P sites will likely remain niche services.
To go much further, P2P lenders will need to contend with something technology can't change: regulations. If citizen banking takes off, P2P lenders could find themselves facing off against the banks themselves, which aren't likely to cede their positions of power to these upstarts. And indeed, some regulations appear to be in place chiefly to suppress start-up competitors, such as a US rule that stipulates that a company must get the permission of another bank in order to become a bank. Not all such regulations are designed to block start-ups. Many are designed to protect investors. The US Securities and Exchange Commission, for example, is required to vet each new loan individually. And in Germany, a bank must have €5 million in equity before it can operate.
Actually, there's probably plenty of room for traditional and citizen banking to operate side by side. Even if people turn away from traditional banks en masse, these have little to fear, says Rainer Lenz, a former banker with what is now DZ Bank in Germany. Large banks typically rely on consumer loan interest for only around a third of their income, he says.
The real effect of successful citizen banking on traditional banks could be both more subtle and more powerful, says Lo. The more enlightened banks will see an opportunity. After all, isn't a bank already a kind of social network? By playing a more transparent role in matching their customers with money to lend to customers who wish to borrow, banks may adapt and even thrive in a financial system dominated by P2P transactions. You might say that if Facebook becomes like a bank, banks will become more like Facebook.
And never mind the banks. If citizen banking takes off, it could change people's day-to-day reality in the fundamental ways that the now-global Occupy movement is clamouring for. With interest payments going directly to the masses, rather than to banker bonuses and skyscrapers, P2P lending could cause more money to circulate in the real economy. It also naturally distributes risk among many individuals in a potentially more transparent way, rather than concentrating it in large, "too big to fail" institutions." (http://www.newscientist.com/article/mg21228421.300-bank-says-no-ditch-the-bank--borrow-from-the-crowd.html)