Will the Internet make Banks Extinct?

A new company with a groundbreaking service might replace the need for traditional lenders. The company's name is Prosper and they basically serve the role that banks have traditionally played; investing money from people who have it and lending to people who need it. The site allows people to set up profiles and create postings, almost like classified, asking for a loan. The site then pulls credit scores and allows investors to choose loans to bid on based on their risk preferences. Its basically a marketplace for loans that matches lenders and borrowers; the function that banks have traditionally filled.

Think about it...banks will provide typically less than 1% (.42% reported by BankRate) interest on an average savings account. The bank then takes that money and lends it out for personal loans, car loans, mortgages, credit cards, etc and typically will pull in anywhere from 5%-35% depending on the risk level. The bank then keeps the delta between the two rates. If this new service takes hold, it could really threaten the bread and butter business of banks! I'm sure that will take a long time but I think the topic is relevant for today's kids because online marketplaces for personal loans, mortgages, auto loans, and even credit cards may be the way our kids borrow money when they become an adult.

I've heard that the service has its issues, primarily with bad debt but I do know some investors using the system who say as long as you diversify enough that there is nothing to worry about. Today, they only allow personal loans but its just a matter of time until they move into secured debt, which I think will make the application even less risky. Don't you just love technology? You may not believe me now but I actually wrote a business plan brief for this exact application several years back - I called it "TakeRate.com". Maybe they'll buy the domain name from some day...;)

Earn Smart. Spend Smart. (Borrow Smart?)
Dave
www.PAYjr.com
www.PAYjrVisaBuxx.com