Although the Uber of Banking tag does not make sense, narrow it to marketplace lending and the tag is certainly appropriate.

The reason is simply network effects. Banking as a whole is a service business not a network-effects business. My decision to use bank x rather than bank y does not influence anybody else’s decision.

Marketplace lending is different. More borrowers attract more lenders and vice versa.

In a network-effects battle, the players amass massive war chests. The recent $1 billion raise by SoFi shows that it has joined Lending Club and Prosper in an intense network effects battle.

Lending Club was the first to IPO and that certainly gave the company name recognition, and it became the Netscape moment for Fintech. Although the stock has not performed well, Lending Club is still valued at nearly $5 billion. Many great companies had bad stock performance and recovered when they reported good results (Facebook, for example).

OnDeck is a different story. Not only has its stock performed badly, but its market cap is now so far below $2 billion that it has fallen into small-cap hell (ignored by most funds) and few stocks emerge from small-cap hell. When OnDeck first came out to IPO, we figured it had a problem with Customer Acquisition Cost (CAC).

The giant SoFi raise ends the niche marketplace story. Sofi started in student loans, but that was simply a market entry strategy, as we reported here.

Mortgages will be the next big battle ground that has so far been relatively untouched by innovation.

Working capital finance is the massive opportunity that many have attempted but nobody has got right, yet.

All these massive markets are niches within marketplace lending. When you realize how massive these markets are, such as student loans, mortgages and working capital finance, it is strange to think of them as “niche,” but within the context of a marketplace that is what they are. If you are a lender, you want to define things like % return, maximum draw down, loss rates and liquidity i.e. risk adjusted return on capital. You don’t care if the underlying asset is a student loan, mortgage, invoice finance or whatever. Similarly, a borrower simply wants lots of lenders competing to get a low rate and does not care if that lender is an individual or an institution.

Prosper will be the one to watch now. It was the early pioneer. It has done $5 billion in loans and has top-tier investors. The game plan used to be to do an IPO at this stage to get the branding value, but Prosper may decide to stay private. If it does, expect some aggressive moves – remaining private no longer means thinking small.

This is not game over for banks – far from it. Marketplaces are good for service businesses and vice versa and service businesses are usually valued more than marketplaces in the long run as we report here. Banks and marketplaces are natural allies.