The financial collapse that began in 2007 left a sour taste in consumers' mouths when regard to the banking industry. But the silver lining is that this opened the door for alternatives. Established choices like credit unions picked up new members in droves.
But beyond that, other new lending options have emerged. Peer-to-peer lending and crowd-sourced funding are growing in popularity, even arguably becoming mainstream.
And, if a new study is to be believed, the next phase of this lending landscape transformation will be retailers like Walmart (WMT) and payment processors like eBay's (EBAY) Paypal launching their own invasions of the lending business.
Neither of these companies currently offers mortgages (although Walmart's Sam's Club offers small-business loans), but it's not a far-fetched scenario.
From Crisis Comes Innovation
As the financial industry collapsed, a handful of entrepreneurs positioned their companies as a viable alternative to traditional bank lending.
The first to emerge were peer-to-peer lenders, the largest being Lending Club and Prosper.
How do these companies work? First, a borrower applies for a loan. If he is approved, his riskiness is assessed and he's assigned an interest rate. Then, the loan is opened up to lenders (other individuals, i.e.: your peers) who pool the money to fund the loan.
Loans are approved for a variety of purposes: consolidating credit card debt, financing cars, even paying for weddings. What's astonishing about this groundbreaking borrowing-lending model is the amount of money that has already changed hands.
Since its establishment, Lending Club has funded nearly $1.1 billion in loans. Prosper has funded another $433 million.
The benefits are clear: For borrowers, the rates tend to be lower (even if only marginally so) than they'd pay with a credit card company or bank. And for investor-lenders, the interest rates are much higher than they would earn through a savings account or certificate of deposit.
Somewhat akin to peer-to-peer lending is crowd-sourced funding, which made its appearance not long afterward. The largest of these are Kickstarter and Indiegogo.
These platforms allow artists and entrepreneurs to pitch a product or project that, with some financial backing, they could accomplish. Individuals who believe in the project pool together their money -- often in exchange for a gift or prototype of the final product.
If enough money isn't pledged, no money changes hands. It's a low-risk way for ordinary folks to feel like they're part of the beginning of a great idea. And it's simultaneously a great way for entrepreneurs to test business concepts without going heavily into debt.
So it's no surprise that these companies have similarly been remarkably successful in just a matter of years: Kickstarter has seen over $350 million pledged and Indiegogo receives "millions each month," according to The Wall Street Journal.
So What Would Walmart and Paypal Bring to the Picture?
According to a Carlisle & Gallagher Consulting Group study released Monday, when it comes to big loans like mortgages, at the end of the day the most important factor is cost. And where do you shop for bargains? Walmart, of course.
An overwhelming majority of those polled (80%) said they're open to non-bank mortgages, with one-third comfortable with Walmart as a lender and nearly half open to Paypal. As one Business Insider reporter put it, "You know things are bad when people trust Walmart more than banks."
But as much as people love to hate Walmart, even those who berate the retailing giant still recognize a bargain when they see one.
Consider the money that could be saved over the lifetime of a high-principal 30-year loan: The difference between an 8% rate and a 6% rate on a $100,000 30-year mortgage adds up to nearly $50,000. When you're talking about six-digit loans, even small differences in rates can mean huge savings for borrowers.
Of course, there's no telling whether Walmart or Paypal will begin to offer these products, especially since it's a bit outside of their current wheelhouse.
Regardless, it is refreshing to see the lending industry become more consumer-friendly. As new platforms continue to emerge, consumer interest rates should get more competitive -- even for those struggling to get on their feet after a foreclosure, short-sale, or bankruptcy.
And one thing is clear: It's not the banks leading the charge on this innovation -- meaning that they may continue to become less and less meaningful.
This article was written by Motley Fool analysts Adam J. Wiederman. Motley Fool newsletter services recommend eBay.