Don't just howl with rage. Try an idea that does away with banks altogether.

You have a contract directly with the borrowers, not with the institution. If the borrowers don't pay up, you loose that money. Zopa doesn't pretend that you have money sitting in a vault somewhere that you can take out whenever you like.

To be fair to banks they don't really try to push that vault myth either, but that is the mental model people still use when interacting with banks.

The most significant feature of modern banks is fractional-reserve lending. Your bank borrows $100 from you (e.g. by letting you deposit money in it), lends $90 to your neighbor, and predicts that by the time you want your $100 back, someone else will have paid off its loan so that the bank has $100 in liquid cash sitting around. (If that prediction turns out to be false, then your bank borrows money from another bank, and if no other bank is willing to lend to it, then the government steps in.)

There's no way you can play this game without a large amount of money and a willingness to jump through the government's regulatory hoops.

It doesn't make money. Banks do that (well, prior to the recent financial crisis).

See Prosper, incidentally, which had lending peers decide which loans got funded and at what rates. If you think BoA was bad at estimating default risk, wait until you see the average Prosper portfolio.

I think the difference is that you are still the lender while a real bank just takes your money and does whatever it likes with it without even asking you. On Zopa you decide that you actually lend 500 or 5000$.

Thank you -- I see a lot of people thinking 'banking' is all about your personal small loan from the neighborhood bank. That's like a tiny slice of the tip of the iceberg.

Most banking takes place in volume, it is done through personal contacts, and it requires substantial knowledge and background in banking to do. Anyone who has ever managed a significant line of credit, term loan, or more sophisticated instruments used by larger businesses knows that you cannot just replace it with some peer to peer model.

I agree completely here.

I am also not that bitter that bank employees are getting bonuses. There are probably some really smart people solving complicated problems there, they don't deserve to be punished because the government happened to bail out their employer. (They should have just let the banks fail, if this is such a big deal.)

I think the only thing that's kept credit unions from doing that is size. If, and this is a huge IF, a credit union like Zopa can grow sufficiently large, it could do it.

Well

Things have to start somewhere. A new "financial system" will have to grow naturally to create any sort of stability, that is based on the trust in the system. And mind you your bank adviser is not really an adviser but a salesman. If you want advise on money use Mint.com.

There is nothing that hinders this kind of thinking to scale.

Microfinancing shows that there are money to be made in decentralizing where the money comes from and where they go to. It fit's perfectly into the "spread your investments" that seems to be the most stable.

To add to that, I actually think the future will bring much more small to medium sized companies than necessarily large organizations so it seems to be the right way to approach it.