P2P Lending | web 2.0 meets reality
As we move towards launch, one of the things we watch carefully is consumer confidence and reactions to moves in the financial markets. We believe in the opportunity for P2P Lending, and that in fact the transparency brought about through P2P Lending offers a win – win for consumers and financial services.
Let me explain …. first off, looking at consumer confidence, while these statistics are American, and we certainly hope that Canadians will not have the same degree of change, our economies tend to operate closely.
Consumer Confidence Index – The Conference Board
The Conference Board Consumer Confidence Index, which had declined sharply in February, fell further in March.
More interesting is examining the cause of the drop. Recently the Toronto Star ran this piece by NY Professor and economist Joseph Stiglitz, which summarised for me anyhow, the crux of the matter.
They thought that financial innovations could somehow turn bad mortgages into good securities, meriting AAA ratings.
….
It seemed too good to be true – and it was. Worse, banks failed to understand the first principle of risk management: diversification only works when risks are not correlated, and macro-shocks (such as those that affect housing prices or borrowers’ ability to repay) affect the probability of default for all mortgages.
My own take, that I have written about, is that the technical mechanics of interbank investments (Asset Backed Commercial Paper, ABCP) have overtaken basic common sense. Rule #1 has always been to know your customer, and … for the customer to know you. This transparency has been lost in many ways.
The promise of P2P Lending is being re-defined
One promise, for me at least, for social lending lies in the return to better transparency between those who lend (invest) and those who borrow. That transparency offers something beyond just rates, and insight into the financial service.
Consumers consider the protections they have within the regulatory environment, especially here in Canada. Until recently P2P lending has been held up as a web 2.0 replacement for traditional financial services. This is too simple an argument.
Regulation is a fact, and probably desired (within reason) by most people. If P2P Lending is to evolve as a sustainable business that addresses the needs of all parties, then the local country regulation is a component that has to be built into the model.
Web 2.0 has to meet reality!
Consumers first
At CommunityLend our vision is to build a long term sustainable service that puts consumers first, and that includes ensuring their rights and obligations are addressed within Canadian regulations. We won’t be picking on anyone in the current credit mess, not even Banks. Rather we hope to offer some insight, opportunity for conversation, and benefit to consumers, particularly users of our service. Our role is to offer a sustainable service, and largely stay out of the way where possible. We will present opportunities for qualified lenders and borrowers, that are as transparent as we can, and offer value in the eyes of the consumer.
Thoughts and comments welcome.
