Lending Club Is First of Many Disruptive Bank-Techs to Go Public

NEW YORK (TheStreet) -- Peer-to-peer lending is going public. Lending Club, an online-only bank, announced it is planning a stock offering. But, this is just the leading edge of Silicon Valley's move into the banking business.

This effort is typical of how Silicon Valley does business. First, pick out an industry, next, transform the various pieces of the industry through technology and then see the industry respond. While large banks have focused on providing "one stop" banking, the wave of the future appears to be going to different providers that address specific needs.

Banking is being transformed and something like Lending Club is a great way to get involved and be a part of the new wave. You can be sure this is the first of many more.

Like many of the companies in this crowd funding space, Lending Club uses sophisticated computer algorithms and "big data" to screen borrowers and lend money to those whose loans are too small or whose credit may seem a bit shaky.

This is typical of what is happening today. Not only have a substantial number of other peer-to-peer lenders been started, there are other "new" lender-types that are moving onto the bankers turf.

This is the future. Banking has to change. Take a look at the current lot of teenagers. They never go into banks and wonder what all those "little" bank buildings are for. But, they are very familiar with electronic gadgets. In five to ten years, these individuals will be the foundation of the new wave of "bank" customers. Banking is going to have to change to accommodate them. As a consequence, there are going to be a large number of Internet-based companies coming public over the next few years.

For another example, let's take the payments system, long the bread-and-butter of the commercial banking system. What is the future of the payments system?

Well, take a look at PayPal. PayPal is an international e-commerce business that allows payments and money transfers through the Internet. These online transfers are an electronic alternative to paying by more traditional paper methods such as checks and money orders. One should note that checks and money orders are nothing more than vehicles that convey information, and there's no better way to convey information quickly and efficiently than the Internet.

In my mind, eBay's  (EBAY) purchase of PayPal in 2002 will be seen as one of the best acquisitions of the century. Unfortunately, for eBay, this acquisition got a bit lost in everything else that eBay was doing. It was no wonder to me that Carl Icahn presented a proposal to eBay to spin off PayPal into a separate company. PayPal is a game-changer. Icahn perceived that PayPal needed to be set free from the rest of eBay and run on its own. The board of eBay resisted that push, and Icahn withdrew his proposal. But, rumors have it that the idea of creating a new separate company is back on the table. You might watch for this in the future.

To confirm the importance of this area, Google  (GOOG) has tried (unsuccessfully) to get into the game. But, a lot of other entrepreneurs and investors are also attempting to get into the payments system. And even more, new young companies are working in the other component areas of banking.

Despite modest efforts, the large banks will eventually change. Commercial banks will not remain dormant forever. Why? It's about teir bottom line. McKinsey & Co. reports that commercial banks earned $1.3 trillion in 2012 in the payments business, 34% of their global profits. Revenue in this area is up about 3% per year over the last five years. Other sources grew only by 1%.

This is too large a part of their returns for large banks to ignore. As in other industries targeted by faster and better operations from Silicon Valley smarties, when the smaller, more technologically focused companies succeed, the larger companies respond, often by acquiring these new systems or the companies themselves. Keep your eye on Lending Club and others companies like them coming to market in the future. Not only can these companies be good investments individually, they can also bring good premiums when incumbent firms acquire them to get back into the game.

At the time of publication, the author held no positions in any of the stocks mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.


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