Monday, January 26, 2015

Technology and the unbundling of commercial banks

A quick thought on this piece by how technology is unbundling commercial banking. Specifically:


On the loans front, startups are of two types (1) those that help companies find the best loan terms (marketplaces) and (2) companies that either directly or indirectly give loans to businesses using data and by connecting businesses to those with funds (alternative lenders)
Some examples of the first type include:
  • Fundera is an online marketplace that connects small businesses with funding providers
  • Creditera which helps businesses build and monitor credit and find the best loan terms Some examples of the second type include:
  • OnDeck which leverages electronic information including online banking and merchant processing data to identify the creditworthiness of small businesses in minutes
  • Funding Circle which is an online marketplace which allows savers to lend money directly to small and medium sized businesses
  • Square Capital which uses a businesses transaction history on Square to offer funds with payments tied to sales volume
  • Kabbage which leverages data generated through business activity such as accounting data, social media, shipping data, and other sources to understand performance and deliver financing options for small businesses instantly.
  • Biz2Credit which is a marketplace peer-to-peer lending platform
  • Lendio is a platform that helps small business owners find lenders and secure loans
The primary purpose of commercial banks, the function that makes them banks, is making credit evaluations. Any company which takes on that function without the accompanying risk if the loan is not paid off, is in a moral hazard situation which will ultimately create a credit bubble. I'm not sure which of these does that, but worth keeping an eye on.


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