Are Online Lending Sites a Threat to Banks?

[Dar es Salaam, Tanzania]
WELL, I certainly think so. What has always annoyed me about our entrenched banking system is how most banks treat the little guy (or small business owner) who's looking for a loan to get started or expand an ongoing operation. I could never understand why banks fall heads over shoulders in order to lend money to individuals who simply don't need it, yet make it almost impossible for those who desperately require said funds - yesterday. Oh, I get it. I guess it's sort of like courtship. If you show your desperation too early on in the game, the suitor is not impressed and most likely will reject you. But if you have lots readily available options, then you stand to win yet more hearts. :-)

New loan sharks on the block
Well, it appears that things just got a little more interesting thanks to the power of the Internet and dynamic web applications which are created using popular web programming languages like PHP. Quite frankly, I am a big proponent of web-based applications because all one needs is access to a web browser, which has become the universal user interface. Because of this, new innovative lending sites such as Zopa.com and Prosper.com are about to make loan officers throughout the banking industry play a little what if analysis themselves. In other words, "what if more people decide to borrow money from these websites thereby leaving us out in the cold?"

According to this article in the International Herald Tribune, these 2 sites are disruptive to the current status quo.

We bring together people who have never met to lend and borrow," said Chris Larsen, co-founder and chief executive of the San Francisco-based Prosper, which has had 140,000 users since it started a year ago. "Somebody who has money should be able to loan it out and somebody looking to borrow should be able to find a lender."

Banking analysts suggest that these hyper-efficient operations, with few employees and no costly real estate, could force changes to established banks.

"As a researcher, these sites make me wonder if the core business model of financial institutions is changing," said Mark Meyer, an analyst at the Filene Research Institute, a Wisconsin-based group that studies credit unions. "We are talking about a potentially disruptive innovation in financial services." {source}

I'll comment more about this later, but right now I have to jet! :-)