In the math that sums up commercial lending, there are borrowers and there are the traditional lenders, banks. This week at FinovateSpring, members of a third element that could upset the simple equation, crowdfunding, showed their stuff.
Crowdfunding is "nascent, but I think it's real," says JP Nicols, chief executive of the research and innovation firm Clientific and a partner at the Atlanta-based management consulting firm Bank Solutions Group.
"You look at the core bank business and this was one where there was a motor on this business and it's quickly evaporating," Nicols says.
He was referring to companies like P2B Investor and Realty Mogul, which both presented at FinovateSpring, held Tuesday and Wednesday in San Francisco. The two also were searching for investors to fund real estate deals and small businesses.
Realty Mogul, of Beverly Hills, Calif., opened for business in March. The company aims to create a marketplace for investors to pool their cash and buy shares of "pre-vetted"' investment properties. P2B Investor, which opened for business last year, arranges for online investors to extend small businesses a line of credit on the basis of their receivables.
The model differs from that of the crowdfunding site Kickstarter, mostly in that the companies' underwriting standards make the loans less risky.
"This is a very well-established business," Nicols says. "That's different than 'Hey, me and my buddy want to make a cool new handle for our bikes and let's start a Kickstarter.' These are real businesses, real business models."
Hundreds of thousands of loans have been made through crowdfunding. Two well-known crowdfunders, Lending Club and Prosper, allow members to make peer-to-peer loans.
In the meantime, P2B Investor and Realty Mogul are taking advantage of the lack of credit in the market, says Bradley Leimer, who leads digital channel strategy for Mechanics Bank in Richmond, Calif.
Jim Marous, senior vice president of corporate development at digital direct marketing agency New Control and author of the Bank Marketing Strategy blog, says, "There is nothing stopping a direct funding, or a direct payment relationship where you completely break the bank out of the equation."
Regulatory uncertainty is one hurdle facing crowdfunding startups, Marous says.
"No one is doing anything about the compliance question," he says. "Does the government, at some point, get involved, and where are the controls on funding?"
And competition from traditional lenders could pick up. A bank conceivably could build a crowdfunding-style system to serve its own customers, Marous says.