Finance 2.0 Implications of Web 2.0 for Financial Institutions

Short Description
The peer-to-peer (P2P) interaction that is the hallmark of Web 2.0 platforms has begun to make inroads within the financial sector, offering a potential challenge to the dominance of traditional financial companies. New payment platforms and lending systems based on the P2P model are attracting consumer interest; however, the future of these finance 2.0 services is uncertain. It remains to be seen whether small, innovative finance 2.0–based firms can compete in an industry with such high regulatory and entry costs. Nonetheless, these P2P forays into the business-to-consumer (B2C) finance market are having an impact on the profit margins of retail banks and prompting them to seriously consider the prospects of finance 2.0.

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Content
The growth of Web 2.0 platforms, which enable user-generated content and communication, will impact contemporary B2C finance. Web-based “finance 2.0” companies have begun to offer financial-service products—namely payment systems and P2P lending platforms—traditionally provided by brick-and-mortar financial service firms.
Such finance 2.0–service products will, at best, remain a niche within the overall industry. Still, Web 2.0 services will be useful in helping brick-and-mortar banks communicate, and some firms may even find it profitable to open minor branches specializing in finance 2.0 services.
The rise of finance 2.0: P2P financial services.
P2P lending platforms and payment systems have emerged as viable options for finance 2.0 services. In the case of lending, P2P loan services can reduce costs by excluding retail banks, the traditional middlemen, from loan transactions. A variety of Internet companies are “nibbling” into the retail loan business by arranging relatively small loans, i.e., less than $75,000. P2P loans are typically granted on a “one to many” basis, spreading lenders’ money over a pool of borrowers.
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