P2P Lending and Online CD Auctions

I realize I’ve written about P2P lending in the past but when I saw in NetBanker that Lending Club was getting back into the market, after suspending operations this spring, I became intrigued.  I realize this is a new service and you can’t directly compare it to a seasoned business.  However, from the filing while they were booking new loans it appears that a substantial number were financed with the company’s own funds.  They were also keeping the loan rates lower than the market could have been, most likely to attract customers looking for a loan.  This was probably somewhat of a discouragement to attracting potential “lenders” as the returns would have been reduced.  In other words they were effecting natural market conditions.  Another interesting note was that fully half of the loans that were booked were to reduce credit card debt.  Which I feel shows where the current growth in their market truly lies.  I’m still not fully convinced that the market can handle too many of these “services” right now.  Currently the general population are hearing through the media about the stresses on the economy, whether real or not,  and consumer psychology is what drives the market.  With consumers conserving and saving funds and dealing with fuel inflation there really isn’t a lot of excess consumer funds or deman to place into a somewhat risky investment vehicle as these loans tend to be.  In other words I think the market is still last resort for people looking for a loan and their is more demand for these funds than supply.  I think these businesses are going to struggle until the consumer psychology starts to turn and the demand to invest picks up. 

So much for the asset side of the balance sheet.  Recently on the liability side MoneyAisle has come online.  In a nutshell it is LendingTree for CDs.  Customers login put in how much they are looking to place and the term of the CD then the 72 banks currently in the program bid on the money.  Except for the marketing and free press aspect I’m having a difficult time figuring out what the banks really gain from this.  Granted the dollars are small and they don’t have to bid but small banks have enough competition in their own markets and now they are competing on a national scale to attract “expensive” funds.  This is nothing more than national rate shopping.  These customers are most likely not going to add additional products from the bank that books the CD and when it matures they are going to leave.   Unless the bank is de novo, just opened their doors, or is having a difficult time attracting funds I’m struggling as to why a bank would put a lot of these CDs on the books.  For MoneyAisle to be successful they are going to need a lot of banks because each one will probably plan to only put a small amount of these expensive funds on their books.

I like the fact that people are testing the markets for new delivery channels and this is all pretty interesting.  If you don’t try something you will never know if it really works or not.  So, I do applaud all of these people for giving us the consumer more options.  The real test will be how it helps their businesses.

Positive Employee Experience… More Customers and Growth

Last week I attended the Enterprise 2.0 conference in Boston.  It got me to thinking about how these “new” tools can effect the way we do business.  My colleagues at nGenera, Don Tapscott and Tammy Erickson, have spent a great deal of time researching and talking about how the different generations (Boomer, Gen X, Gen Y, etc.) approach work and technology in general.  I’m not going to discuss that, directly, but I am going to discuss what can be learned about today’s technology and how we can make our bank and credit union institutions competitive and functional in the marketplace.  Because if we don’t innovate and evolve we will wither and die.  The key is to do this in a smart way.  Not to just throw the newest and greatest thing in the marketplace into your mix.  To spend time and energy on something to just sound cutting edge, if there is no business purpose to it, is a fools errand and you will actually be less efficient.

I believe that if smaller institutions start embracing Web 2.0 collaborative technology they can use this to grow their franchise with the younger generation and expand their market outside their geographic territory.  This is especially true with the asset side of the balance sheet.  Deposits, other than CDs, are more difficult to attract because larger banks have an advantage with their ATM network.  However, there are ways around this, too.  The more innovative institutions are reimbursing customers for foreign ATM fees now.  If this continues I believe that ATM fee income will evaporate over time and banks will need to look for another source of revenue anyways.  It is the smarter institutions that are planning for this possibility.   More than just about any industry “retail banking” tends to take a wait and see attitude to anything new.  Whether it is technology or new delivery methods no one wants to be first and everyone copies everyone else.  More and more we are seeing non traditional banks coming into the “banking” arena.  With companies like Merrill Lynch offering traditional banking products and retailers like Wal-Mart working to change Depression era banking laws to break into the market.  The key is to now capture the Facebook generation with the services and delivery channels, not necessarily different products, that will attract them.  If some of this collaborative technology is used in house so that your summer interns and recent college graduates can get their ideas shared and acted on this will should naturally flow into customer delivery.  Especially if these younger employees, through their Facebook and LinkedIn networks, start bringing in more younger customers.  The key is to listen to them and handle this the right way otherwise these networks will be used against the institution.   You won’t be able to attract these workers, or younger customers, to your institution.  This will in turn, lead to a contraction in your customer base over time as your older customers aren’t replaced with newer ones.  If we have learned nothing else today’s technology has sped up information flow to either our benefit or detriment.   I believe that even though larger institutions would seem to have a leg up with their financial resources and in house expertise.   Smaller institutions have opportunities to effectively compete and grow due to their flatter organizational structure and ease to move decisions through to market. 

 I would be interested in hearing your thoughts on this topic.  Specifically, if you are currently going down this road and what the results have been.