CommunityLend blog

When we began the CommunityLend “journey” back in early 2007, there was a broad sense of optimism in the general economy and the potential in web based business. We started out by studying everything we could on peer-to-peer lending (also known as social lending) and focused on a way to design the right model for Canada. Primarily we saw the need to replace the rapid de-personalization of the financial services industry in Canada with the transparency, social openness and smart self service that came along with web 2.0. Peer-to-peer lending seemed an ideal model to achieve this.

Little did we know back then that the world’s financial system would come to the brink of collapse shortly after September 2008 and that out of the ashes of that calamity would come a call from all of the G20 governments for better financial systems built on transparency and more stringent risk management.

All of this talk though still seems lost on the “average” bank customer who just wants access to credit at a reasonable rate. Unfortunately, this is the opposite of what is happening internationally today. The outcome of tougher regulations and oversight of banking has in fact been a tightened supply of available capital and increased price of that capital in most markets, despite the fact that central bank rates in most industrialized countries have never been lower. So what’s the way out?

Our answer is simple (albeit with our own bias). When we look at what is being achieved by peer-to-peer lenders in other countries, it appears the potential exists that peer-to-peer lending can be one answer to both the need for more capital at a reasonable price as well as the need for more transparency in lending.

This quote from a recent piece at Contrarian Profits sums up the premise of peer-to-peer lending and contained a graphic depicting base loan rates at LendingClub and a sampling of US Banks:

“They call it “peer-to-peer (or P2P) lending,” and the premise is simple: I have money I am willing to lend; you would like to borrow some; these companies bring us together and facilitate the loan. Because their systems are automated and connect lenders and borrowers more directly, the companies can afford to take much smaller commissions on the loan than a traditional bank.”

The peer-to-peer lending model eliminates middle men, and also eliminates what can appear to be obtuse processes that sit between people and their money. Processes such as securitization of mortgages, whereby a mutual fund in France becomes the ultimate lender under a derivative contract with a series of US and Canadian banks. It is quite evident from the last two years that such contracts were bad for borrowers and investors alike, because of the trust factor.

The “spiders web” of connections that lies between borrowers and lenders in modern finance has become so commoditized and distant that the relationship which used to exist between them is much less than before. The processes that have evolved for borrowers in particular have little sense of participation in a process that offers little other than a loan at a cost that is seemingly driven by factors outside the borrower’s control.

Peer-to-peer lending is small potatoes in the grand scheme of things. But we can’t help but believe that somewhere between 19% ++ credit card rates and the 0.25% paid on savings accounts, there is some room to offer a better way for those who choose to be different.

So that brings it back to us. It has been a LONG journey. In many respects, too long. But there is good news. We are really close . We do have the usual last minute paperwork and technology stuff to smooth out prior to launch but we are nearly there. We will update you here on a regular basis with information related to our launch.

We hope that it has been worth the wait and that you will join us as we aim to change the rules of lending™ here in Canada.

Let’s start being different by telling you that questions and comments are welcome.

- CL Team