Seismic Waves

I would like to talk to you about two words: one is ‘bank’. The second is ‘disruption’. Disruption is probably less understood, so allow me to explain with a little story.

In the middle of last December, a start-up was launched on the New York market, called Lending Club. It climbed to a market value of $9 billion almost immediately, and became the 14th largest bank in the United States.

The Lending Club site does what all banks do. I deposit money, and someone borrows it. He repays the money with interest, and I get a bit of the interest. Just like at the bank. But with one huge difference. This isn’t a bank. It is an internet company. There are no branches, or thousands of tellers, or shady fees, there is no old fashioned and expensive middleman. It is computerized and efficient, which is why the interest rates are good for both sides. Better than the bank.

People are already doing it in the US. Each month, $300 million pass through Lending Club. Even hedge funds have opened deposits, to gain from the interest rates. And not just there: Kiva, Prosper, Zopa, Funding Circle, Lend Friend – they are all bank alternatives. This market is really growing

But wait a second, can it really work? Can you really drop a reliable institution for someone online? Faceless, with no offices, without a ‘boss’?

Good question. A company called Ebay has 80 billion answers to this question. One for each dollar that moved through them between complete strangers. PayPal has 115 billion answers, and Lending Club has over 4 billion. It is already working.

What Golan Telecom did to Cellcom, and what Cellcom is trying to do to Hot, the Internet has done to the banks. It is rewriting the market rules. Social protest does not change entire economies. Competition and technology definitely do. And that is what ‘disruption’ means.

Written by Nadav Brandstater

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