Big Banks' Greatest Threat - Non-Banks

In The AFR I evaluate one of the greatest long-term threats to conventional banks: the post-GFC revival of "non-banks" and "marketplace" funding, where the latter is also known as "peer-to-peer" (P2P) lending. Ironically, the 1997 Wallis Inquiry into Australia's financial system forecast that banks and their balance-sheets would be largely superseded by more efficient, technology-enabled "markets" (eg, securitisation). After explaining that "disintermediation refers to the process of borrowers bypassing [bank] balance-sheet intermediaries and obtaining finance directly from the capital markets", the report predicted that although banks might "still perform valuable functions in a disintermediated lending environment … loans would increasingly be secured directly from the markets rather than from an intermediary's balance sheet". While this vision was temporarily junked by the GFC, non-banks and their Internet-era incarnation, P2P lenders, are clearly on the rebound as evidenced by the surge in securitisation volumes, the ASX IPO of Pepper, and the local launch of well-capitalised P2P participants like RateSetter and SocietyOne. Click here twice to read the full column for free (VIEW LINK)