Peer2Peer & Social Banks: Show Me The Money!

Written by Igor Beuker on December 4th, 2007 |

At December 12, 2007 MIT Club Northern California is doing a Panel Discussion on Social Lending in Palo Alto San Francisco. I really would like to go but can’t. And if Richard Branson taps into peer2peer banking or social lending, banks should at least attend this event!

So, banks like Citibank and ING Direct book a flight and be there. You should understand this revolution and take a closer look. Also look at the power Zecco Share, the smart concept of social trading community Zecco, with Zecco Share. Power to the united consumers?!

Banks, please learn that louder shouting through annoying commercials won’t help. Leave that shouting for money to Cuba Gooding Jr. and Tom Cruise in the great movie Jerry Maguire

Some of the classic web business plays are the elimination of the middleman (Ebay) and the removal of the store front (Dell), but some businesses have been unaltered by the internet revolution. Take banking as an example. Banks get paid to take risks by making loans using their depositors’ money. This makes them some of the biggest middlemen around. But, things weren’t always this way.

Before banks existed, if someone had to get a loan they would do it through the original social network, friends and family. Access to sufficient capital was a big problem. If friends and family are poor, then starting a business was difficult.

With Web2.0 and the new social lending or peer-2-peer loans, a person’s social network has a much larger and global reach: A third-world entrepreneur can get the capital to start a small brick-factory from first-world creditor at very low interest. Or, a recent college graduate can refinance their credit card debt to a much lower interest rate by borrowing from others who were in their position before.

At the heart of the matter is the concept of trust. Someone might trust a family member with a loan, but how about a friend on Facebook? People do just that. Take the social lending startup, Lending Club, as an example. Lending Club got its start as being purely a Facebook application, and has already surpassed a million dollars in loans. Or take a look at our social lending Zopa item.

VCs have taken note, too. Prosper has already received $40M of investment, Lending Club had a $10M round of funding this year, and CircleLending was just recently acquired by Virgin Money. Such amounts are miniscule in comparison to the overall lending market, but they may also be the first drops in a torrent to come.

Topics that will be discussed during the panel are:

• Can online social networks for lending compete with mainstream banks and lending institutions?
• Is social lending for everyone and everything, or does it best serve certain niches?
• How is trust built online?
• What motivates someone to use social lending vs. a well established financial institution?
• Who are the social lenders, and who are the borrowers?
• How rational are the social lenders?
• What is the actual risk of being a social lender?
• How large of a role does altruism play in social lending?
• How is social lending being monetized?

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