Many people are protesting big banks fees by simply taking their business elsewhere. The growing movement to leave big banks, fueled by charges for formally free services and high interest rates, has started a growing trend in alternative finance firms that range from small banks and online pawn lenders to peer-to-peer lending services.
As the Occupy Wall Street protesters are quick to point out -- not many are feeling very trusting toward big banking institutions. But the changes in big banks are largely consequences of the 2008 credit crisis and subsequent regulations that are choking revenue sources. Banks have been quick to charge consumers for the difference in various forms.
As a result, credit unions and pawn lenders are emerging as an alternative and cheaper source of banking services. "Credit unions, which are effectively not-for-profit co-operatives, are stepping up to offer cheaper alternatives to the short-term, high-interest loans provided by payday lenders," reports Reuters.
Data from the National Credit Union Administration shows demand for short-term, small-dollar loans from credit unions rose 52% in the second quarter, and more aggressive selling will be seen in the third quarter. "The credit unions are also lobbying to have their business lending cap more than doubled to 27.5 percent of assets so they can better target small businesses unable to access bank funding."
Credit union popularity has extended to several online financing companies that provide loans to individuals and small businesses at significantly lower interest rates than big banks.
Reuters provides these examples:
- Online lender BillFloat, backed by Ebay's PayPal, offers a 30-day loan of up to $225 to consumers looking to pay their bills. The service, started two years ago, has an annualized interest rate of 36 percent, making it far cheaper than payday loans, where rates can be as high as 500 percent.
- Peer-to-peer lending site Prosper.com, which has raised more than $70 million in venture funding, connects people who want to borrow money with those who want to invest. It has more than $262 million in funded loans since it launched in 2006.
- Pawngo.com, an online pawn lender backed by Daylight Partners, Access Venture Partners and Groupon-backers Lightbank, offers up to $1 million to small business owners with collateral -- a shift from normal pawn operators where small loans of less than $1,000 are the norm.
The increasing demand for alternative financing solutions has also led to several talks of IPOs. "Regional Management Corp and Community Choice Financial have filed for initial public offerings this year, and Cash America said it would spin off its online lending unit, Enova International, in a $500 million IPO."
Interested in following this trend? To help you explore the emergence of smaller financials, we started with a universe of 200 small-cap financial stocks with market caps below $1 billion. We searched among them for the names experiencing significant levels of insider buying over the past six months.
From that universe, we further identified the ones with significant levels of institutional buying in the current quarter.
Insiders and institutional investors think there's significant upside to these smaller financials -- do you agree?
Use this list as a starting point for your own analysis. (Click here to access free, interactive tools analyze these ideas.)
List compiled by Eben Esterhuizen, CFA:
1. Prospect Capital
2. Pacific Capital Bancorp
3. United Community Banks
4. Central Pacific Financial
5. Rockville Financial
6. Cascade Bancorp
7. State Bancorp
8. Capital Bank
9. SWS Group
10. Bridge Capital Holdings
Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research.
Kapitall's Rebecca Lipman and Eben Esterhuizen do not own any of the shares mentioned above. Institutional data sourced from Fidelity, short data from Yahoo! Finance.