May 31, 2007

Peer-to-Peer (P2P) banking: After mergers and acquisitions one more headache for Bankers ? PART 1

Talking about Internet Marketing to a banking audience a few months ago, I mentioned at some point that if I was a banker today my worst nightmare would be the moment that Internet giants like Google, eBay, MySpace or Yahoo decide to enter the banking business as online banks. The participants thought that I was obviously joking since no one tried to challenge this idea or to follow-up to the discussion.

A few weeks ago this episode came back to my mind reading the news here in Holland: the online bank opened its virtual doors for business, as a loan auction. will act as an intermediary, charging a commission of 0,5% per transaction for intermediation and creditworthiness control, between people who want to either lend or borrow money but want a better deal than the deals traditional banks are offering. The idea of Peer-to-Peer banking is simple: Wannabe citizen bankers can offer their money against an interest rate that is higher than the interest of saving accounts or other similar types of investment to borrowers against interest rates that are lower than the interest of banking loans and bank credit. The whole setting is not much different than the millions transactions in second hand articles taking place between people, facilitated by the thousand online auctions eBay style or exchange portals.
Searching the web I came across more such online banks like in the USA that recently closed their first year in business with 140.000 members and loans of $ US 27 mil. and the British with more than 110.000 members already. The message seems to appeal to a large audience segments: the first day of operations the massive interest for put the server out of the air and according to the data published in the site up to now loans of about Euro 850.000 (over $ US 1 mil) have been booked.
The total amounts of loans are still low but this kind of developments should cause some uneasy feelings to banking boardrooms. The fact that online Citizen Banking has not made headlines yet is not important. Looking back to the history of the Internet we have plenty of examples of incumbents who woke up one morning to find out that a chunk of their business had left them for ever (the click-and-mortar travel and vacation sector and the traditional bookstores were among the first to experience this) migrating to unknown online companies with strange names.

Next week : Part 2