Quiz of the Day:
What did eBay do for local newspaper small ads?
What did Amazon do for bookshops?
What did Amazon do (again) for music shops?
What did Wikipedia do to Encyclopaedia Britannia?
What is YouTube increasingly doing to TV broadcasters?
And when musicians can sell their music directly to the fans, who needs record companies?
How about the Internet generally shining a massive light beam on any organisation that is inefficient and charging its customers more for a product with little differentiation from their more efficient competitors?
You could add Google and Facebook compared to the advertising model of TV companies and, of course, the news web sites are busy eating their own lunch and killing their paper-based parents.
OK, so you've read this all before; the Internet is great, Nigel's loves it, it changes everything, no old business model is safe, be aware and either embrace the new reality or be run over...
Meanwhile, in retail banking it seems nothing has much changed for hundreds of years. We trust our banks to take our salary each month, they hold it for us and pay us a pittance while if we want to borrow they charge us a high interest rate and pocket the difference. As I know people who used to or still do work in the banking industry (and having had a recent debacle with my own bank that took 3 hours on the phone before they grudgingly admitted they had lost some of my money), they seem blind to competition at the moment, paying each other nice fat bonuses, annoying almost everyone in the world in the process - will the Internet run them over?
Some people think so.
Just think - you might be sitting with money in your account earning 1% in interest and next-door to you lives someone else who wants to buy a car and is about to pay 15% to borrow your money from the bank you've just deposited in. Could we do something more efficient than this? What if someone can connect you and your neighbour together more efficiently?
For a few years, there have been a few peer-to-peer lending organisations, basically doing to banks what eBay has done for unusual items - if the seller and buyer can find each other and cut out the middle-man then it should be cheaper (a smaller spread between lender and borrower), so the borrower pays a lower rate of interest, the lender gets a higher rate of interest and everyone wins (except the banks).
Distintermediation wins again.
So, I tried it. Now I'm not going to say whether I am a borrower or lender, however I have joined the ranks of the largest UK-based P2P lender - Zopa and have to say it seems to be working a treat. This will be a new market to watch; like eating the first oyster, whoever was first to lend was a brave person, but Zopa has now been trading for 7 years, has lent over 178Million pounds and claims to have 2% of the UK personal loans market.
The clever bit is that even though they make the underwriting decisions, the money is actually lent from the lender to the borrower, so if Zopa were to fail, they don't take the money with them. The danger, of course, is if their underwriting decisions are not robust enough it is your money that they are lending. On the other hand, they publish all their previous history on their web site (ask your bank about its lending to the sub-prime market, Greece etc. and see if they give you a spreadsheet of their losses - No? Somehow I thought not), so if they publish everything and have nothing to hide that in itself should give us confidence.
So, I guess I should add in the disclaimer that I am not a financial advisor and am not making any representations on behalf of Zopa or anyone else (the next two P2P lending companies in the UK are Funding Circle and Ratesetter and there are a few others too), but hopefully they will be successful and challenge the banks to be more efficient in their lending, who knows - we could see the gap between borrowing and lending rates fall and the world will be a better place for all.
The odd thing for me is that the people protesting about the banks behaviour over the last few years just seem to be waving placards and not promoting something to take the place of the banks, though perhaps I have missed it. Not that this is a political blog, but if they wanted to make an impact, perhaps they should put their financial affairs in this type of place and either borrow or lend to Zopa or other P2P lenders themselves.
For more info, see for yourself here: http://www.zopa.com/member/nhawthorn