Archive for the ‘social lending’ Category
“… disruptive innovation in financial services” | Innovation & Transformation Wings blog
Nice piece from Cindy on social lending, with background, some history, and current state of a few players around the world, including CommunityLend.
‘Peer-to-peer lending is a means by which borrowers and lenders may transact business without traditional intermediaries, such as banks. The process may include other intermediaries who package and resell the loans – examples include Prosper and Zopa – but the loans are ultimately sold to individuals or pools of individuals. An enabling technology for peer-to-peer lending has been the Internet, which connects borrowers with lenders, for example through an auction-like process in which the lender willing to provide the lowest interest rate “wins” the borrowers’ loan’. Other leading models striving for foothold in Canada is Community Lend.
Incidentally, we continue to make good progress with the regulators, and still plan to launch in 2008.
Nexx | New Zealand social lending service
Another future social lender in consultation with regulators, this one in New Zealand. Nice to see they are taking the prudent route and getting regulation on their side first.
Most of our hold ups are to do with regulation and approval, but there have been some interesting side adventures along the way.
…About us:
We’re Nexx, a new service that connects people who need money to people
who have some to spare and are looking for a good rate of return.
The decline of social capital | “Bowling Alone: The Collapse and Revival of American Community” Putnam
Fascinating study by Putnam based on research that predates internet, and the mere fact it talks of things such as the Elks club, Parent Teacher Associations, and organisations that are either quaint, or unknown to many nowadays, paints a picture of North American society that has changed dramatically in terms of how people interact. Those organisations had a social aspect, and and economic one, with a rich history in helping people and families.
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.
Consumers, banks to feel pinch
The Bank of Canada has just released its twice yearly assessment entitled the Financial System Review. The Globe and Mail reports on it here.
reportonbusiness.com: Consumers, banks to feel pinch [emphasis ours]
Canadian banks have generally remained solid throughout the past 10 months of turmoil, and are able to tap markets to finance their shortfalls. Plus, they have continued lending to Canadian borrowers, albeit with different types of credit instruments that generally cost borrowers more.
We are always watching the Canadian situation and how average Canadians, consumers and Banks are being affected by market conditions. What the report suggests is that we have high debt costs for Canadians, at the same time as the Banks are increasing prices because of market conditions.
This chart is taken from the report. It shows that Canadian consumers, on average, are steadily borrowing more each year, and that it was comfortable because income levels supported that growth. However since 2005, costs of debt repayment are taking a larger proportion of income for the first time in recent memory (since 1989). In simple terms we have had low, and reducing interest rates making the cost of borrowing relatively more affordable, and this has been reflected in the multiple credit card offers we see in the mail for the last few years. The sharp reversal in 2005 suggests even those low rates were no longer enough to cover the debt payments, on average.
The Globe says …
Indeed, Canadian consumers are increasing their household debt levels, and finding that debt more expensive to service, the review showed.
Debt as a proportion of income has climbed steadily for the past 20 years, and now, debt is 131 per cent of income, the review points out.
At the same time, higher mortgage rates have pushed up the cost of carrying a growing debt load. The debt-service ratio was 7.7 per cent at the end of 2007, compared with 7.3 per cent in the middle of last year, just before the credit crisis erupted.
Its always a tough call, and often a very personal one, when times are tough(er) and people want to get better control of their personal debt. At the same time Banks need better cheaper, and more modern alternatives to serve Canadians to meet their individual goals. At CommunityLend we have taken a very Canadian approach and will offer an alternative that we believe will challenge the traditional rules of lending, offerring a viable alternative and set of choices for Canadian borrowers, Investors, and Banks.
Inside the World of Peer to Peer (p2p) Lending | thickenmywallet.com
We were honoured to have the opportunity to answer some highly pertinent questions about social lending in Canada. We hope our answers are of some interest to those following the space in Canada, the role of regulation, and the evolution of this new and exciting business model.
This month I am pleased to welcome Colin Henderson, CommunityLend’s Chief Technology Officer and Dave Coleman, CommunityLend’s Community Advocate, to discuss the social lending industry. By way of explanation, social lending, as the name implies, is the lending of funds between groups of individuals rather than institutions, like banks. I took our time to speak a little about their organization, the future of p2p and some fallout from Lending Club’s decision to suspend new lenders due to regulatory issues.
Thoughts on Web 2.0 and the financial services model
There is much talk about the push towards regulation in social lending. However this headline about Citi introduces a different point, and highlights a positive aspect of social lending that is directly tied to web 2.0 companies.
FT.com / Companies / Financial services – Citigroup’s Pandit vows major cost cuts
Vikram Pandit, Citigroup’s chief executive, has vowed to slash the beleaguered financial group’s cost base by up to 20 per cent, deepening fears that Wall Street and the City of London are about to be hit by tens of thousands of additional job losses.
The NYSE jumped for joy on this announcement .. why? The underlying assumption is that Citi can carry on with the current revenue streams, yet reduce their costs by 20%, so the benefit flows straight to the bottom line. Some might suggest there must be a chunk of fat in any company that can do that! Yet this occurs all the time, and is likely what will break the markets into positive territory as most other Banks’ make similar announcements. It is potentially just a matter of time before we see that in Canada.
The web 2.0 difference:
we are not so naive to believe that business realities will not hit us too over time. However what makes us somewhat different at CommunityLend, is that we always try to bring web 2.0 thinking to our financial services model. Web 2.0 meets reality. The advantage of a model that is purely web based is the opportunity to re-think everything in terms of customer activity and support. The promise is a better model for customers and for companies; a viable long term solution that works the way customers expect … a true win – win.
A p2p lending service designed around borrowers with good credit records
Laura at Canadian Business tackles some of the more interesting issues within p2p lending in her article posted tonight.
This one is key.
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.
A New Home to Call our Own
As some of you may have noticed CommunityLend has received a major overhaul. We felt things at the old homepage were getting a bit too static. In an attempt to make things more dynamic we have updated the site with a new look and feel, that is based on our launch design.
We now have an official CommunityLend Blog, a section for CommunityLend in the news and a press releases section; all of which will be updated on a regular basis. In fact, everyone should now be able to see that we have officially announced our Board of Advisers on our press releases page. The entire team is very excited about this major milestone and are anxiously anticipating our full launch.
-Dave
