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Archive for the ‘Social Lending’ Category

FT reports social lending set to soar | thoughts on Zopa

The FT reports on Zopa’s progress as they move into their fourth country and have their third birthday.  What intrigues me a little is the nature of their expansion, that I believe is a mix of licensing and direct involvement.  Their business model is also different in each country, particularly US which has a strange interest sharing arrangement.  So its not clear to me, yet, that Zopa Japan particularly supports the title of this article in terms of volume until the model is clearer for Zopa in their expansive activities. – Social lending set to soar

Since its launch, the enterprise has arranged more than £20m in unsecured personal loans in the UK and is preparing to launch in Japan, its fourth country after Italy and the US since it launch in the UK.

Written by Colin Henderson

March 11, 2008 at 23:16

Posted in Social Lending

Lending Club establishes alliance with WebBank

I missed this event for LendingClub back in December 2007.  They have formed an alliance with WebBank, thus bringing the weight of a regulated FI to support their business model.

Lending Club, for example, has entered a partnership with WebBank, a Federal Deposit Insurance Corp.-insured, state-chartered industrial bank organized under the laws of the state of Utah to originate the loans in a consistent manner nationwide. As a result, Lending Club loans are regulated under WebBank’s industrial loan charter.

The winds of regulation are catching up with P2P Lending in those jurisdictions where that had not been the case to date.  However its also interesting to see how P2P Lending is not being unduly handicapped, in terms of business model, and in fact the credibility associated with regulation, and Bank alliances strikes me as being a positive trend.  As Jim Bruene noted in his prescient December OBR, report entitled Person-to-Person Lending 2.0

Its (P2P Lending) consumer appeal could make it a good marketing platform for banks and credit unions.

Written by Colin Henderson

March 9, 2008 at 16:14

Posted in Social Lending

Social Lending in perspective | a diversification play

Nice description of his investment strategy from LazyMan – a Prosper investor.  Worth the read, and nice way to place Social Lending in perspective too.

Prosper Blog: Prosper, the online marketplace for people-to-people lending » Blog Archive » Are You Diversified?

The last 5% of my investment is with One of the reasons I lend money on Prosper is that it further diversifies my portfolio. I have a few friends who got depressed when the Dow drops from 14,000 to 12,700. I slept very well at night knowing that 60% of my money was invested elsewhere.

Written by Colin Henderson

January 1, 2008 at 17:28

Posted in Social Lending

When is a friend an economy?

William posted a fascinating and thought provoking piece on the Social Economy. I think we are using some words inappropriately, and in so doing making it harder to see the future than it needs to be. One of those words is ‘economy’.

william azaroff | blog

To me the social economy is the same as what others call the reputation or conversation economy. From the time humans started trading what they had for what they needed, we had a social economy. People’s knowledge of the others they were trading with was a crucial factor in those trades and dealings. The industrial age added a level of anonymity into our economy and set us up to pay fixed prices for goods and services from the money we earn from our labour. The information economy didn’t change this at all

So I posted this response on Williams blog, and wanted to go further here.

I am going to challenge everyone so here goes. Social economy, and reputation economy are misnomers. There is no fourth dimension that has suddenly appeared with new ways to buy and sell things. For an economy to operate basic elements are required to facilitate transactions, eg, mainly contract & currency, with heavy reliance on trust.Everything else is just a facilitator- social and reputation [in the way Web 2.0 means] are new elements that have been brought about by internet, and web based tools which provide disruptive alternatives to old ways of transacting.

I suggest what is needed are ways to capture social and reputation in meaningful ways that facilitate commerce. Then we can talk about economy.

Open questions for me – whats the financial value of a:

  • FaceBook friend?
  • a five star eBay user?
  • an OpenID?
  • a Prosper group lead?
  • a prosper group lead who bid 25% on a prosper loan?
  • a LastFM friend?
  • a personal acquaintance who purchased something that you are now considering?

Relevance to Bankwatch:
Another word which is taking on new meaning in Web 2.0 land is friend. Robert Scoble and Jeremiah Owang do not have thousands of friends. They have thousands of acquaintances, whom they enjoy banter and debate with, but thats not what a friend is.

Wikipedia: Friendship is a term used to denote co-operative and supportive behavior between two or more humans. This article focuses on the notion specific to interpersonal relationships. In this sense, the term connotes a relationship which involves mutual knowledge, esteem, and affection.

In no way am I attempting to denigrate the new and evolving nature of the interactions which take place in social media, and I have made many new friends through this very blog. My point is only that when we turn to economy, money and risk of financial gain or loss, we have a long way to go before such online “friendships” can bring broad economic value and begin to assert themselves meaningfully on the economy.

One potential such connection is TripAdvisor. Many of us read those reviews and allow them for form part of the travel purchase decision. Similarly with Chowhound and restaurants. I would argue that is not economic, rather is a form of referral. If we place a financial slant on this; what if a Tripadvisor type service contained referrals for financial products? Would you purchase an investment based on the loosley defined TripAdvisor network? I think not.

I maintain for social and reputation to form part of the ‘economy’ we need more robust tools, risk assessment, and proof. I also think that is coming, and we see some building blocks underway, stumbling, and working at coming up with the right set of formulae.

Looking at the social lending space, Zopa manage it by taking a quite non-social, bank oriented approach. Prosper are the most ‘out there’ by experimenting in the full public eye, and kudo’s to them as they stumble, and regain their footing, but they will get it right.

There is a formula of interconnections supported by algorithms yet to be defined which will allow social and reputation to form parts of the economic structure, likely as part of the trust component.

Written by Colin Henderson

December 20, 2007 at 15:58

US Zopa works by donating interest to help borrower friends

US Zopa launched a preview this morning, and this screen shot shows how the depositor (not a lender) can reduce their interest, and that reduction goes to support the payments of a friend borrower.  I wonder how much this model will provoke interest.

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Written by Colin Henderson

December 1, 2007 at 14:18

Posted in Social Lending

Zopa enters US market with Credit Union partners

A real coup for Credit Unions here, and I am impressed and not surprised to see FORUM involved. 

Zopa going live with Credit Unions as partners

“The merging of financial services and social networking is a great way to reach the younger generation,” says Doug True, senior vice president of FORUM Credit Union of Fishers, Ind., one of Zopa’s launch partners.

Having said that, I will need more detail before I understand the model being implemented, that appears to involve CD’s at the Credit Unions.  I hope there is a simpler explanation that that provided at the WSJ.

Lenders, meanwhile, buy one-year Zopa CDs that are used to help fund
those loans. If a prospective lender wishes to help out a borrower, the
lender can direct all or a portion of the interest on the Zopa CD —
interest rates are currently capped at 5.1% — to help lower the
borrower’s loan payments. Whether a borrower repays their loan on time
has no effect on what an investor earns on a Zopa CD.

Zopa lenders should get their principal back since their deposits are
insured for as much as $100,000 per credit-union member. Borrowers and
lenders don’t pay any fees, although borrowers — who will need a
minimum FICO credit score of 640 — could be subject to late fees.
Zopa, for its part, shares in the interest-rate spread that the credit
unions earn between the loans and deposits.

In order to participate in Zopa’s system, consumers
must sign up with one of the six credit unions participating with Zopa.
For their part, the participating credit unions hope to expand their
membership and stand out from the crowd.

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Written by Colin Henderson

November 28, 2007 at 19:25

Posted in Social Lending

Prosper Days | Feb 2008

Social Lending displays aspects beyond the specifics of the business model.  Prosper is a good example in their display of account metrics, and in their annual conference. 

Jim from NetBanker is on a panel this year, and its great to see bloggers pulled in.  Jim is an advocate for Banks’ to try new things, and having him at Prosper Days is a great add.

“Prosper Days” User Conference Videos Repurposed to Educate Customers (NetBanker)

The conference is an excellent idea, creating a buzz around the company and providing a platform for its most loyal customers to share success stories and network. It’s a model eBay has used successfully for years. The addition of Dubner should increase press coverage and attendance.

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Written by Colin Henderson

November 27, 2007 at 21:49

Posted in Social Lending

Prosper trends towards average borrowers, and sets itself up for stepped up growth

The trends within Prosper are interesting since the sub-prime crisis hit.  Two things stand out that show promise to bear out earlier predictions:

  1. trend of regular borrowers towards using Prosper, who would otherwise have used traditional lenders, and these lenders are Prime or Near Prime [Prosper designations]
  2. borrowers seeking to pay off credit card debt;  typical retrenchment behaviour,  during rough times, but these borrowers are using Prosper, not Banks.

Media Room – Prosper

Of great interest is the anecdotal evidence of prime and near prime borrowers turning to Prosper for loans that would have historically been steered toward mortgage, auto, and home equity lenders. It will be very interesting to watch whether the wake of the liquidity crisis in the broader credit markets results in a definitive trend toward Prosper becoming an alternative source for financing down-payments on homes and cars, funding home remodeling projects, and finding relief from high-interest adjustable rate mortgages (ARM’s). Equally of interest is whether Prosper lenders will desire to help their fellow Americans by funding these types of loans.

While Prosper lenders are shying away from subprime, there is ongoing strong demand for the ever increasing number of prime and near prime borrowers coming to Prosper to consolidate their credit card debt at lower rates and to fund or expand their small business endeavors. For example, in October 37% of loans funded on Prosper went to prime borrowers, compared to 30% in September 2007 and 22% in October 2006.

Finally, Prosper have achieved 200% growth year over year, since they eliminated Sub sub prime borrowers.  $100 Million in loans, is not going to worry the Banks terribly yet, but the indications and trends suggest that a shift is occurring.

Somthing to watch relative to volumes is the filing last week by Prosper of a prospectus for $500 Million in a lending secondary market.  In essence this means that lenders in Prosper can bulk sell their loans to third parties … even Banks?

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Written by Colin Henderson

November 13, 2007 at 10:29

Posted in Social Lending

“Credit crisis has given social lending a friendly pat on the back” | Economist

Brief but succint article on social lending summarises the interesting fork in the financial services road that is beginning to highlight the new model and why it has the potential to offer a legitimate alternative to traditional financial services. 

Peer-to-peer lending | Crunchless credit |

Why aren’t social lenders raising their rates? One reason is that, unlike banks, they are not facing higher funding costs caused by the seizure in money markets. Another clue lies in that word “social”. Mr Advani, whose business is designed to facilitate loans by family and friends, points out that parents tend not to foreclose on mortgages but to restructure them. Even when strangers are involved, lenders are usually not seeking solely to maximise returns.

Most intriguing of all is the possibility that social-lending sites do a better job than their mainstream counterparts of assessing risk. Zopa, which takes a stringent approach to credit assessment and will let only prime borrowers onto the site, boasts a default rate of just 0.1%. Prosper, which is more laissez-faire and has a default rate of 3%, provides measures of “social capital”, such as endorsements by friends, that help lenders to judge the risk of a specific borrower.

Relevance to Bankwatch:
The advantages that separate peer to peer lending from traditional banking, which the article highlights are:

  1. lack of costly infrastructure:  peer to peer lenders do not have the costly infrastructure base that banks have tied up in, branches, staff, and old infrastructure based on a differently regulated model.  Banks must factor those costs into their pricing. 
  2. broader view of return:  social lenders have different expectations on return than traditional Banks.  Social lenders factor the human element into their expectations.
  3. risk assessment is better:  social lenders factor other elements into the lending decision, such as endorsements from friends or relatives.  The human scale of social lending facilitates a clear line of sight between lenders and borrowers, that is the antithesis of the Asset Backed Commercial Paper market that funds Bank lending.

The current market that peer-to-peer lending is tining compared to banking, but it is also brand new, having only begun circa 2005.  Banks would have to look to ways to insulate their own model from those disadvantages if they are to be able to compete with social lenders.

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Written by Colin Henderson

October 26, 2007 at 11:44

Virgin is seeking a different business model in finance

Virgin have been all over the net today, and I wasn’t sure which story even to comment on.  This one at the Independent is a good one, because it summarises quickly the recent direction at Virgin.

Virgin Money launches US ‘friends and family’ lender – Independent Online Edition > Business News

Virgin Money, the business unit through which Sir Richard Branson hopes to acquire Northern Rock, yesterday launched the next stage of its US expansion, with a novel new service enabling friends and families to lend to each other.

Virgin Money USA launched the Family Mortgage after acquiring CircleLending, a specialist financial services company, earlier this year. It has pioneered a business model through which family members or friends can lend money to one another at agreed rates of interest on commercial terms.

So they are have announced the acquisition of CircleLending, which Jim reports at $50M.  More importantly in my view, Virgin are announcing their move into the mortgage space.  Northern Rock and CircleLending are both in mortgages.  The former being traditional mortgages, and the latter in ‘social lending’ morgtages. 

Listening to the back channels, I suspect that Virgin are looking at more than mortgages with the acquisition of CircleLending.  This company has done $200M in mortages so far … clearly a $50M purchase price is picking up a business model more than a portfolio.

Exciring times!

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Written by Colin Henderson

October 15, 2007 at 20:41

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