A Trillion Dollar Market by the People, For the People – How Marketplace Lending Will Remake Banking As We Know It
Traditional lending works well. For the banks.
For centuries, banking has remained fundamentally unchanged. In the simplest
terms, banks match savers with borrowers. They pay interest for deposits and
make loans to businesses and consumers. Depositors see their savings grow,
borrowers use the capital. Banks profit handsomely on the spread.
Banks, as intermediaries, have always added to the cost of borrowing and lending
– that’s the price we pay as a society for their market-making abilities. That spread
represents a price that was accepted because the banks played a part in the
community, and served community needs.
Today, they do neither. Consolidation has created national mega-banks that are
more financial mega-stores than they are pillars of the community. And following
the 2008 financial crisis and the regulation that ensued, lending has dropped
precipitously. While volumes have declined, profits have held. Why?
Because banks make a significant, and ever expanding, profit off the spread.
Read the full white paper at Foundation Capital
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