An Alternative To Banks | The Mark

A new startup is poised to shake up the Canadian credit industry with the creation of an online marketplace to facilitate peer-to-peer lending. Offering an alternative to traditional bank loans, CommunityLend.com launches on the heels of a credit crunch that has made the public increasingly leery of banking institutions

Starting today, Lenders and Borrowers from Quebec can now participate in the CommunityLend online lending system.  In honour of this momentous occasion, the team here at Communitylend have assembled a few fun facts on this great Canadian province:

About Quebec – Did you know?

• Quebec is Canada’s largest province by land mass and it’s second largest by Population with 7.5 million residents
• Quebec’s forest covers more than 750,000 km2, which is the size of Sweden and Norway together. It represents 20% of the Canadian forests and 2% of the world’s forests.
• The Château Frontenac in Quebec City is the most photographed hotel in the world.
• In Montréal that you can see the highest inclined tower in the world : the Olympic Stadium tower.
• Quebec contains more than 3% of the world’s fresh water reserves.
• That Quebec’s electric wiring network is one of the longest of the North American continent? It is made of more than 30,000 kilometres of high-voltage cables, to which is added 100,000 kilometres of supply wires that go all the way to the consumers. If we were to put all the wires end to end, they could go three times around the Earth at the Equator.

Welcome!

- The CommunityLend Team

These last few weeks have seen  a number of major announcements in the Social Lending space including the following:

- Zopa US announced that it has restructured its operation in the US in collaboration  with their credit union partners.
- LendingClub announced it is reopening its US business following its successful registration with the SEC and with the innovative addition of a secondary trading market for their loans.
- Prosper announced that it is closing to new Lenders in order to register promissory notes with the SEC similar to the process just undertaken by LendingClub.
- Zopa UK announced their best month ever, with borrower volumes more than doubling as a result of the credit crunch.

So, how does one sort out all of these announcements?  Is it, as TechCrunch and the New York Times have recently suggested, that the international “credit crunch” is adversely affecting social lending platforms in the same way as it is adversely affecting more traditional lending?  If this was true, then the Zopa UK announcement of drastically increased volume and the LendingClub announcement of asuccessful registration with  the SEC would seem quite out of place.

As insiders in the new, exciting and entirely human industry of social lending, we at CommunityLend see these announcements in a very positive light.  We see them as a sign of the maturation of this young industry.  In social lending’s early days a few years ago, most of the companies who launched their services had very little, if any, regulatory approval by the traditional financial services or securities regulators.  And yet, the core of the business is to create a new asset class for investors and a new lending channel for borrowers.  As time has progressed and these services have shown a significant and expanding audience of folks interested in using them, the appropriateness of regulation has been accepted.  We embarked on regulatory consultation early and understand the need very directly.

The result is what we are seeing with the Prosper and LendingClub announcements and, to a certain degree, what we are seeing with the Zopa US announcement. (As we interpret it,  the Zopa US model was really a compromise market entry by Zopa due specifically to their attempts to deal proactively with the relevant US regulations.)

We at CommunityLend believe that this phase of traditional regulatory compliance is a necessary evolution for the social lending industry in these troubled economic times.  We also believe that it will make us even stronger and more appealing to customers by making us more disciplined in our approach to the very serious business of managing people’s money and of helping people to get access to much needed capital at a reasonable price.

Michael

CNN:  How to prevent the next Wall Street crisis

The new “innovations” simply hid the extent of systemic leverage and made the risks less transparent; it is these innovations that have made this collapse so much more dramatic than earlier financial crises. But one needs to push further: Why did the Fed fail?

He is referring to the distance between the ultimate borrower (sub prime mortgage in hometown America) and the ultimate lender (perhaps a Bank in Switzerland or UK).  More on that here.

On the other hand we have Ron attacking the premise of Social Lending on various fronts, and in this case possibly because it is too transparent.

Marketingroi | Discrimination In P2P Lending?

They also discovered some discrimination against … [post goes on to list the people the report considers are being discriminated against, including race, age, weight]

However, when the entire report that is quoted is reviewed we find quotes such as “Yet the data tell a very different story that suggests that this peer-to-peer lending market actually treats the races more equally than would be expected in a market with accurate statistical discrimination.”  The author of the report is a behavioural economist whose scope is to “identify how consumers use information to make decisions”.

On the one hand we have a credit crisis caused by lack of transparency.  We have a new industry that bases its model on transparency.  Different social lenders use different levels of sophistication to manage transparency and that sophistication is something we spend a lot of time thinking about.  There must be adequate information to make decisions yet rock solid protection from anything illegal, including discrimination, or identity theft.  These considerations are paramount in our assessment of how we build out our Online Lending Service here in Canada.

Clearly the law must be followed, and Social Lending must deal with anything that is illegal.  The power of transparency as one step [of many] in elimination of future problems is not lost though, and as the industry evolves we will see a natural tension work to find the right balance.

The themes are:

• banks have increased their pricing
• banks have cut back lending
• lenders [investors] are seeking alternative vehicles with better and predictable returns
• good quality borrowers with better credit scores are using social lenders
• Zopa continues to have very low default rates

Lafferty Group – Intelligence to bank on | Newsletters

Credit crunch a boon to social lending
The credit crunch has not been bad news for everyone in financial services: the current conditions have been a boon for social lending websites that connect lenders with borrowers without the intermediation of a bank.

Our contribution was to note that lenders [investors] are seeking better returns, and that while we are aiming our service at good quality borrowers it is our intention to offer support and alternatives for those unable to qualify on the CommunityLend service.

Amazon.ca: Bowling Alone: The Collapse and Revival of American Community: Robert D. Putnam: Books

This is a powerhouse study on a subject that would hardly seem worthy of such attention to many Americans. However, most people, other than extremists and misanthropes, probably have nagging worries about America’s plummeting levels of public participation, volunteerism, and civic engagement. This concept of “social capital” is Putnam’s specialty.

This book makes the argument:

“In a nutshell, he argued that civil society was breaking down as
Americans became more disconnected from their families, neighbors,
communities, and the republic itself.”

Despite the allusions to US, the concepts apply equally to Canada. Substitute Canada in the quote, and few would disagree.

There are several factors laid out that suggest why this disconnection occurred, but the #1 factor was television.

Fast forwarding to today, television usage is dropping and being replaced by internet usage. Noticeably the internet activities with the most rapid pick up are those that are social in nature.

This all goes on to confirm the obvious, that humans are naturally social, but that internet offers one way that social interconnections, and eventually social capital [because they are different] can be rejuvenated. At CommunityLend, we plan to help in any way we can, by offerring a platform, a venue, a clubhouse, for Canadians to do just that.

International Banking Systems Journal

CommunityLend: A borrower and a lender be (registration required)

Founded on the noblest principles of democracy, community, individual choice and responsibility,   social lending may have the potential to do what Amazon has done to book selling. Lawrence  Freeborn talks to Colin Henderson, chief technology officer and co-founder of the latest variant on  the concept, CommunityLend.

This one is key.

Canadian Business Online: Breaking financial news and daily top business, company and technology news

There are kinks to work out, of course. One key question: who takes advantage of the service? Who borrows from Community Lend? And who makes money off it? Folks with top notch credit scores don’t necessarily need peer-to-peer lending. The banks already cater to them. But if Community Lend only serves those with low credit scores, chances are good that default rates will be high, and investors will be reluctant to put up their capital.

While it might be simple to suggest that Banks cater to borrowers with “top notch credit scores” I would take some issue there. Many feel in need of a better borrowing alternative, and those people are across the spectrum of credit scores, with a host of various needs. In some ways this is indicated by the reality of the average rate of 18% ~ paid on unsecured debt in Canada today.

At CommunityLend we are designing our service around borrowers with good credit records, seeking a better financial services alternative that works with their lifestyle. At the end of the day, borrowers will choose what’s best for themselves.

Anyhow, thanks to Laura for tackling some important questions, and thoughts are welcome.

Lending Club Puts Hold on Lending Activity While It Sorts Out Some Legal Issues

… … its borrowing practices could be interpreted as the sale of securities, which requires a license Lending Club doesn’t appear to have.This suspicion has been reinforced by Veronica McGregor, an attorney with the law firm Perkins Coie. She says that “it looks like they are getting themselves a license to buy and sell securities.”

These are issues that other P2P lending sites – such as Prosper, Virgin Money, and Zopa – will have to face if they haven’t already.

For our readers here in Canada, CommunityLend is working closely with the applicable Canadian regulators, and has been for over 9 months now. This was highlighted in this recent piece from the Toronto Star.