The financial world is one of the most mediated industries on the planet, but that seems to be changing with the rise and prevalence of financial technology, a line of business based on using software to provide financial services.
Currently, borrowing in the financial market, such as housing mortgages, often involves assembling financial documents and presenting them to a loan officer at a bank, who will take weeks to determine what you can borrow and at what rate and then present you with a narrow menu of costly options. Now, imagine a software that can give you personalized credit rating, and then connect you to lenders ranging from banks and credit unions to pools of individuals who want to lend privately at a negotiated rate for whatever duration you agree on. You could shop around, combine different types of financing and arrange a mortgage package that best suits you, all within a few hours. Yes, it is almost like we can Uber money. In fact, we are on the verge of the Uberization of finance, which will bring multiple new opportunities but also a range of new risks. The most common exemplification of this phenomenon is crowdfunding platforms such as Kickstarter and Indiegogo, which allows anyone with a great business idea solicit money from anyone who are willing to support his or her business, usually in chunks of $1,000 or less.
Such Uberization of money will greatly enhance the role of financial market to provide liquidity. Currently, the financial market is definitely “less liquid” for small business startups as established venture-capital firm or large bank would dole out small amounts because their overhead alone, for due diligence and compliance, would mean steep losses on investments that size. Therefore, when Uberization of money leads to an explosion in peer-to-peer lending, we can foresee a boom in small businesses. There are already many players in this field, such as Lending Club and Prosper, with less than $7 billion in loans in 2014, they are tiny in the multi-trillion-dollar lending world. However, the sector is showing explosive growth and PricewaterhouseCoopers estimates that it could be a $150 billion business by 2025. The perfect scenario is to create a virtual realm where pools of small lenders can combine online to disperse pools of small loans. And they can do it without the friction, cost or heavy policy hurdles of traditional banking. However, this perfect scenario may be very far in the future given the technology required and the need to earn both lender and borrower's trust.