A Panel on Infrastructure
Money and Meaning

New Business Models in Loans

Link: It's Like Lending to a Friend, Except You'll Get Interest - New York Times.

As described in today's Bob Tedeschi New York Times' column, Prosper.com takes elements of web-based social networks and banks to lend people money. It does this by acting as a middle-man between those who need money and the funding source, in this case individuals who want a place to put their money that gets a better return than offered by traditional banks... and don't like the risk of the stock market. Blending eBay, Friendster, and also a bit of Paypal, it lets people looking to borrow funds (of up to $25,000) post their needs, along with their credit history and the interest amount they are willing to pay, to a web site where potential lenders can offer to help.

As Tedeschi writes:

  • "Once the bidding is complete, and if enough lenders bid enough money to finance the loan at a single rate acceptable to the borrower, Prosper transfers the money to the borrower's account and establishes a monthly repayment system that withdraws money from the borrower's checking account. (Should a borrower default, Prosper hires a collection company on the lender's behalf and alerts credit bureaus.)"

While the area known as "microfinance" grew up as a term around lending to entrepreneurs in poorer areas of the world (South Asia, Africa, etc.) perhaps Prosper.com is part of an emerging trend that leverages social networking technology as well as human instincts that are simultaneously charitable and self-interested, to do things closer to home.

Back in the late 1990s, thought leaders I spoke to for market research projects in the financial area often suggested that the web would generate new ways to borrow and lend money. The idea was that those who could gain ranged from individuals to entire municipalities who might want to raise funding through inviting investment in public bonds. I kept waiting for such financial marketplaces to grow up, especially to fund movie projects (my own self interest wanting to move a few of my screen plays from the dusty shelves to the marketplace), but was not to be.

Anyway, I'm not sure how the traditional banking industry will confront these new models. Anything involving money usually leads to inflated amounts of control on the part of organizations dealing with that money. Note: the line "what happens in Vegas, stays in Vegas" is so cynically powerful precisely because it brilliantlly repositions the advertiser's gain at the expense of their customer's loss, as it's the fundamental operating principle for the folks who own all the casinos that what happens in that city has almost nothing to do with mutual pleasure and everything to do with getting individuals  to spend/lose money. 

Given that banks are known as particularly conservative when it comes to new products (we used to joke in advertising that their idea of a new product usually involves some new way to take a few extra pennies off of their customers), well, with things like Prosper.com, the banking industry will be just like the telecoms when it came to new technologies such as VOIP or even cell phones - only more so. Namely they'll probably ignore these developments as long as they can.

Another model of micro-finance is Kiva, which follows the lending-to-Third World-entrepreneur concept. There, individuals can lend small amounts , keep track of who gets the loan, and while they earn no interest, use their money to make money, albeit not for themselves. As the website puts it:

Anyway, it's hopeful. Not only that but this post is a new test of tagging technology (see Technorati or Delicious), which will change all media including advertising, up the road. More on that later.

Jonathan Field


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