CommunityLend blog

John Greenwood wrote about us on the front page of the Financial Post (National Post) today.

It is a little sad that we see Zopa US close shop apparently following the participating Credit Unions inability to adequately fund the loans.  We had always known the US Zopa was an entirely different model, with the Credit Unions being the sole lenders, and then the credit crisis came along.  Nonetheless we will miss them.

Zopa US

So while our model is doing very well in current market conditions, the US has been adversely affected in a way that just couldn’t have been predicted when we launched in the US and is no way the fault of our partners. For us, a real shame is that we weren’t able to launch the original model over there for regulatory reasons.

On a related not Zopa UK is showing double digit increases in volume since the credit crisis hit, reflecting all our belief, that the time is ripe for consumers who are seeking financial alternatives.

P2P lender Zopa reports soaring uptake as credit crunch bites | finextra

Zopa says that between July and September an average of 3700 borrowers joined per month, compared to 2500 a month in the previous quarter.

Explaining the surge, Sarah Kennedy, head, customer proposition, Zopa says: “Clearly the tightened lending criteria at the banks is helping to drive borrowers to look for alternatives.”

This quote captures the essence of what we hope to offer Canadians at CommunityLend. Its nice that it came from the Harvard Business Review, and sorry we can’t provide the full article which is subscription only.

hbr.org
It is only a matter of time before these digital systems close the arbitrage enjoyed by large banks, which lend at up to 15% interest but pay only about 5% on capital. Why do business with a bank when your network’s lending and savings interest rates are both 7%.

To grasp the power of such a system, imagine your local credit union with the membership and social networking capabilities of MySpace.

A simple concept worth reflecting on, for us, and for Banks. Whatever the interest rates are in Canada, the reality is that a large spread exists between loan rates, and deposit rates. The facts are clear, and, the costs that Banks’ must cover are real.

At its essence CommunityLend would like to offer a better way for everyone to share in that spread by providing a simple and efficient service.

We think its a powerful concept. What do you think?

5 Ways To Lend Money Online  Annotated

tags: p2p lending, clblog

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.