Earthquake rocks financial industry

Did you feel the earth change on Monday, February 6, 2006? Feel the tremors?

As of this date, the financial world has been forever changed. The world of borrowing and lending has now been transformed by the power of the internet, the power of peer-to-peer networking, upon which companies like eBay and Napster have been wildly successful. (Napster counted 60 million users at its peak).

Zopa is a peer-to-peer lending network in the U.K that has existed for a little while now. They want to someday have a U.S. presence. Well, another company has beaten them to it.

There is now a U.S. based internet peer-to-peer lending network: Prosper.

And they even have Groups that look eerily like credit union's original field of memberships or SEGs. People are already talking about the pros and cons of Prosper.

What does this mean for credit unions? Time will tell. One thing is for sure: technology has fundamentally changed the way the entire world works over the past ten years. This new peer-to-peer technology, now applied to the financial industry, has the power to transform borrowing and saving forever. Zopa, and now Propser, have in a certain sense, snuck in the back door. While credit unions have been focused on growth and offering more services, a non-credit union company has come in to fill the void left by credit unions taking their eye off their fundamental reason for being: pooling savings to make loans to people with a common bond. Why didn't a credit union develop this new Prosper-type network? It is because they were too busy trying to compete with banks and become more bank-like? Or too internally focused to take the time to figure out a way to use the internet to create a radically new way of doing business?

Today is T + 5 days and counting.

So that's the bad news for credit unions. Is there any good news? The good news is that there is still something to be said for face-to-face transactions, no matter whether you are a borrower or a saver. There is still a certain degree of security knowing that professionals are handling your money and screening borrowers (if you are a saver), and that you can talk to someone and explain yourself if you are a borrower. Not to mention that your money is backed by the full faith of the United States government. There is still opportunity for smart, savvy companies to find their own unique niche in the marketplace. If you are a credit union, have you found your niche yet? Do you have an unbreakable emotional connection with your best members?

Thanks to Trey Reeme's Open Source CU blog for making me aware of the launch of Prosper.