Our industry is beginning to be noticed in the traditional financial mainstream press.
peer to peer lending | www.ft.com
What do you do when your bank’s gone away? Get by with a little help from your friends, naturally. Peer-to-peer lending – which lets friends and complete strangers lend small amounts of money to each other over the internet – has enjoyed a surge of interest in recent months as banks have cut back on lending, often even to creditworthy customers.
Categories: social lending
Interesting interview with Tadatoshi Senoo, CEO of Maneo – a social lending company in Japan. He worked with MUFJ, the largest bank is Japan, and afterwards decided to set off on this venture. The interview focusses on the hardships of setting up such a company.
Social lending takes root in Japan | Japan Today
What does the company offer?
Our company provides an online social network for individual borrowers and lenders where they can find each other. Borrowers auction their conditions, including interest rate, and lenders who offer the best conditions can lend money to them. Lenders can consider whether it is a good investment from disclosed information about borrowers. But both sides cannot reveal personal information and we do not allow them to physically meet each other as a safety measure.
How does the system work?
In legal terms, our company lends money to borrowers and lenders invest on pecuniary claim to us as a fund. Although this system is theoretically complicated, the process for borrowers and lenders is very simple.
Categories: Japan · P2P Lending international · social lending
Niall Ferguson [Laurence A. Tisch Professor of History at Harvard University and a Senior Fellow of the Hoover Institution at Stanford, and the author of The War of the World: Twentieth-Century Conflict and the Descent of the West.] offers analysis and conclusions on the world of financial services, and the historic lead up to the current financial crisis.
Wall Street Lays Another Egg | Vanity Fair
The author charts the emergence of an abstract, even absurd world—call it Planet Finance—where mathematical models ignored both history and human nature, and value had no meaning.
Its a long piece and worth the read for those interested. He speaks of systemic issues and highlights one in particular – the obscure world of derivatives, which amount to over $400 trillion around the world. This amount is significant, when compared to world GDP of $49 trillion, or the combined stock markets’ value of $51 trillion. [note: 1 trillion = 1,000 billion]
All this to display the runaway value in a financial market that surprisingly few understand, and which is hidden behind a complex mathematical formula developed in the late 90’s. The results of this formula drove the derivatives market. 
The result of the belief in this formula, developed by Nobel prize winners, was as Ferguson goes on, that normal lending practices and risk assessment were replaced by computer models based on the formula. Thus we saw securitized sub-prime mortgages magically transitioned into AA commercial paper, and sold off around the world.
If ever there was a time to bring back transparency of information between borrowers and lenders, that time has come. While mathematics will always play a part, the relationship between lenders and borrowers is more than mathematics.
For borrowers transparency allows them to be assessed on their merits, and the right balance of information about them. For lenders transparency offers the insight and information to get back to basic risk assessment, and to provide appropriate to the right borrowers.
Categories: Canadian Banks · social lending
Here is a link to a recent thought-provoking article from VentureBeat journalist, Chris Morrison, entitled "Will "social capital" be the next big industry to emerge?"
His central example in the piece is the emerging field of "Microcredit" and specifically the work of Nobel Prize winning Mohamed Yunus. I especially like Morrison’s quote on this defining nature of the success of these emerging models:
"Contrast that to aid organizations that have spent hundreds of years providing selective handouts — with little result. In just three years, microfinancing by both non- and for-profit organizations has taken flight, with a huge effect. The key was simply adding old-fashioned capitalism and a business model to charity."
The founders of CommunityLend have been greatly influenced, as they develop the social lending model, by the amazing work of Yunus and others challenging the rules in the world of microcredit. We thought it fitting to provide a shout out.
Michael
Categories: social lending
We were fortunate enough to have the opportunity to speak and provide a demo of our lending system a the SIT annual user conference in Markham yesterday. The audience comprised a broad group of banks, credit unions, and technology providers.
Patrick Lannigan who organised the event introduced us following an overview of their strategy.
Then on to our presentation …
and live system demo …
Categories: social lending
It’s been a strange month for the financial services industry as a whole and the burgeoning industry of Social Lending is no exception.
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
Categories: CommunityLend · P2P Lending international · social lending
Lending Club have come out of their quiet period with an astounding announcement for themselves and social lending.
Today, we’re delighted to announce that we have completed this process and are now available to both borrowers and lenders. We believe that this SEC registration is a major step forward for the Lending Club community and social lending in general, as it helps establish the space as a investment alternative to the traditional debt instruments and credit products offered by large financial institutions.
Much of this remains to be digested, but the immediately obviously novel parts are:
Clearly social lending is undergoing consequential changes and shifts that will determine ultimate viability, and LendingClub are leading the current next wave with securities regulation under their belt and apparently unlimited access to lenders and borrowers.
Categories: regulation · securities regulation · social lending
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.
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.”
Categories: p2p lending · peer to peer lending · regulation · social lending
In reading this piece by Joseph Stiglitz at CNN, he speaks of the causes of the crisis in banking. In particular there is this little gem;
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.
Categories: CommunityLend · social lending
In their latest edition of Retail Banking Insider, Jane Cooper at Lafferty has a piece entitled ‘Credit Crunch a boon to social lending’. We are mentioned and quoted in the along with Zopa and Prosper.
The themes are:
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.
Categories: CommunityLend · social lending
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