Peer-to-peer lending is just one of the radical changes taking place in the banking landscape.
According to Goldman Sachs, alternative lenders approved 62% of small business loan requests last year.
The traditional big banks approved just 21%. The Pullback The big banks are being buffeted by a pair of factors that are leading them to reduce their exposure to lending.
Alternative lenders – also known as “Shadow bankers” – aren’t burdened by the regulations and costs and as a result, can offer better loan rates and still generate similar net interest margins.
In terms of small business lending, On Deck Capital, Inc. and privately-held Kabbage have the early lead. Notably, shares of both LendingClub and On Deck have traded off of their highs, following concerns that growth expectations may have been too aggressive.
Risks To Consider: Now that the big banks have strengthened their capital bases, they may start to re-take lost market share in various lending niches.
So even as you track the peer-to-peer firms, it’s wise to track the competitive response of the big bank as well.