A recent article in the New York Times described how entrepeneurs who wanted to start their own restaurants, but couldn't get a loan from a bank, turned to the Internet for investors. The amount they borrowed in each case was tiny: less than $20,000 in most cases. But it's a trend with great growth potential. What online shopping did to music and book stores, online financing may someday do to banks.
Everyone despises banks, and for good reason, especially after the recent financial crisis. They charge borrowers high interest, and give depositors almost no interest-- just high service charges. What if they could be circumvented? What if you could get a mortgage, personal loan or small business loan from the public? The borrower could pay lower interest, with more flexibility, while the lender could get a much higher return on their investment than if they just stuck the money in a savings account. Of course, the risk would be higher, especially for the lender. But the rewards would be greater, too.
The change is coming. If banks are smart, they'll get ahead of the trend, and start their own direct loan websites. If they don't... well, let's hope they don't. I'd love to see the big banks go out of business.