You don’t get the chance to see someone with the credentials of Larry Summers extolling the virtues of your industry every day. But that is just what online lenders recently experienced. Summers, the former Treasury Secretary and a world renowned economist has recently shifted toward becoming a full time supporter of the online lending industry. Once Summers left the Obama administration, he took a seat on the board of the Lending Club. The Lending Club is the country’s largest peer-to-peer lending company, with a lending division known as the payment company Square.
At a recent conference called Lend It 2015, Summers listed why he is so excited about the online lending industry and why he is sure that “technology based businesses have the opportunity to transform finance over the next generation.” Along the way, Summers expects tech based financial companies to help to make the economy more stable and efficient in the years to come.
Though it used to be that online lending was somewhat scrutinized by everyday borrowers, the industry has recently enjoyed an upswing in popularity. Customers who have great credit and want to consolidate credit cards on lower interest rate accounts can do so easily online. And even people who have lower credit scores can make use of online payday advance lending companies to get a quick loan to help them keep their heads above water in between paydays at work. In short, the Internet and other progressive forms of technology are beginning to change the way that people borrow money for good. And Summers seems to be on board for the long haul.
The Change in the Online Lending Industry
Why such dramatic changes in recent years? Well, according to some experts, half of all the workers in this country either own or work for small businesses. Whether it is because of the total number of jobs or output, the economy has finally recovered. However, lending to the small businesses that have fueled so much job growth has been somewhat stagnant. Part of the reason for the lack of lending progress to small businesses has been the consolidation of so many community banks. From a historic perspective, these types of lending companies have traditionally been the most responsible for making loans to small businesses.
So what has someone with the clout and know how of Summers so excited about online lending? It is the fact that companies like Square and PayPal are rapidly expanding their service lines to include small business customers. Online lending, as of right now, only accounts for about $10 billion of the $700 billion in outstanding loans. But it appears that online lenders are growing at a rapid pace. And all of this continues to happen while traditional banks shy away from making smaller dollar loans to borrowers and larger loans to small businesses.
This dynamic continues to get Summers, and other progressive financial experts excited. According to Fed Chair Paul Volker, the only useful innovation in mainstream banking has been the ATM. Sure, finance has changed and improved in recent years, but the benefits of those changes have only been available to large capital holders, instead of the general public.
The fact of the matter is that with the continuing growth of the Internet, new lending companies hitting the scene and ever evolving technology, online loans and other types of new financial services will represent the wave of the future for small businesses and everyday people like you and me. This seems to be something that Summers sees on the horizon, and hopes to champion for some time to come.
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