Sometime ago, we wrote about British Zopa, a person-to-person lending marketplace which we described as eBay for money. Recently, a similar initiative was launched in the US - www.Prosper.com
As described by Chris Larsen, co-founder of Prosper: "Prosper gives people the opportunity to take back the marketplace for consumer credit. By providing the platform and tools for an efficient marketplace created by and for people, Prosper aims to make consumer lending more financially and socially rewarding for everyone."
How it works? People who need money request it, with a listing of why they need the money, and some numbers describing their credit rating. Other people then bid for the privilege of lending money to them. The lower the interest rate offered by the lender, the more likely he is to win the bid. Prosper facilitates, in return for a one-time 1% fee on funded loans from borrowers, and a 0.5% annual loan servicing fee from lenders.
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Compared to Zopa, Prosper has added a number of community elements, the most important one being groups. Designated group leaders confirm that everyone in the group is real, and by joining a responsible group with a good payment history, borrowers get a good reputation by association, and lenders are more likely to offer good interest rates. Belonging to a group also adds old-fashioned social pressure: if a borrower stops making loan payments, he'll bring down the group's reputation with his own.
Let's face it: most banks suck, are paid huge amounts for providing terrible service, and are completely stuck in a 'provider versus consumer' mindset. Which means plenty of opportunity to shake up the industry. Start a Zopa or Prosper in Germany or Singapore, or, if you're an entrepreneur looking to fund a new business, why not cut out the middleman and go straight to the people? (Oh, and if you're a lender - make sure to diversify your loans. You can't trust 'em all ;-)
Zopa is an online platform that matches creditworthy borrowers with individuals who'll lend money to them, thereby taking banks and other financial institutions out of the equation.
Make way for a similar initiative that focuses solely on providing (charitable) microloans to entrepreneurs in developing countries - U.S. based www.kiva.org. In their own words: "Kiva provides a new, sponsor a business option for individuals to connect with small enterprises in developing countries through flexible loans." Anyone with internet access and a credit card can now lend money directly to a farmer in Uganda who needs to buy livestock, or a refugee in Gaza hoping to set up a telephone repair shop.
Loans requested by the entrepreneurs average USD 500. The average lender loans between USD 25 and 100, making payment via Paypal, and does not receive interest over the loan. Compared to simply donating money, Kiva's p2p model appears far more sustainable - both for borrowers and lenders. As founder Matthew Flannery explains: "When you loan to someone and get paid back, you get proof that a business has succeeded -- and you are more likely to loan again." Desktop philanthropists can track 'their' entrepreneur's progress via his or her journal, which includes information about the loan amount, how much has been repaid, and of course how the business is evolving thanks to the loan.
Although the microfinance industry has grown 25-30% annually over the last five years, the demand for microcredit services among the world's poorest is still largely unmet. Combined with the news that the number of lenders to Kiva has exceeded the number of people they can find to borrow the cash, this sounds like an excellent growth market. If not for profit, then surely for good karma!
Fundable (www.fundable.org) is a peer-to-peer service that lets groups of people pool money in 'group actions', for whatever goal or purpose they like. Similar to an online auction, a group action has its own page, describing how much money will be collected and what the money will do. It has only been in business since a few months, but so far, Fundable seems to attract a mix of fundraisers and tech savvy group buyers (for example, 10 people just completed a group buy for a USD 1,100 HP server; each person ponied up USD 110, for which they will receive 10GB of server space, 1GB bandwidth per month, and at least 1 year of hosting. The deal was initiated by 'Louie'). None of the participants takes a risk: if the collection for a group action falls short of its target or deadline, all collected money is refunded. Unlike an online auction, however, Fundable acts as a sort of escrow service between groups of people and the person who collects their money.
Interesting detail: selling to groups is also an option: a seller can offer a product on the condition that a minimum number of people buy in.
Although Fundable is currently a free service, we are convinced that consumers will be willing to pay a small fee or a percentage of what they're spending on a successful group buy, as the potential for big discounts, or purchasing something that's otherwise unattainable, is big. In fact, Fundable, like Zopa.com, is putting the supply and demand strengths of the internet to (a long overdue) good use. Reminds you of Letsbuyit.com? As we've said all along, a Second .Coming may be in the works, now that everyone IS online, and small entrepreneurs are happy to build 1 million dollar businesses instead of 1 billion dollar businesses. Oh, and there's more than a hint of TWINSUMERISM in here. After all, the real challenge Fundable faces is to be able to group likeminded people. All in all, this is definitely a model we would love to get into if it wasn't for our busy agendas and our relentless dedication to finding and bringing you the next big thing ;-)
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