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P2P Lending Predictions For 2012

wiseclerk 1 Comment

I really like this time. The new year lies ahead with crispy, yet unknown innovations. What p2p lending developments might happen in 2012. Here are some personal opinions.
Last year I failed big time with most of my predictions for 2012 not coming true.

Deeper integration of mobile (probability <25%)
Can you use a p2p lending service from a Smartphone? Sure. Some even have special apps for that purpose. But that’s not what we are talking about here. We are at the advent of a couple years timespan where several players (compare this infographic) will be fighting over market shares in the developing mobile payment market. If there is a role for p2p lending services, it is yet undiscovered (aside from the use p2p microfinance makes of it in underdeveloped countries).

Introduction of a p2p financed ‘credit card’ (probability very low)
Carried over from last year – did not happen
I envision a p2p lending service where the borrower does not get a loan in one full amount initially but can access liquidity on demand (within a predefined credit line). From the funding side this would work somewhat like lenders investing in Ratesetter’s rolling monthly loans. On the borrower side the customer could either request an additional payout via a web-interface or more sophisticated the service could issue a branded credit card / debit card for that purpose, enabling the customer to access cash instantly on an ATM.
This concept has very interesting advantages as it allows the p2p lending service to build a durable relationship to the borrowers. And for the borrowers it offers the potential of lower rates on short term debt than the high rates credit cards typically carry.

Continue reading →

Review of My P2P Lending Predictions For 2011

wiseclerk 1 Comment

In January 2011 I wrote down my predictions for p2p lending trends in 2011. Now let’s see how far I was off. The black text is my original prediction, with the review added in green and yellow.

Advent of whitelabel providers (probability 100%)
Okay let’s start this with a safe bet. In 2011 there will be 1-2 companies offering a solution that can be branded and used by p2p lending services and / or p2p microfinance sites. The interesting question here is how the acceptance by potential customers will be. My guess is that it will be slow selling until the companies have set the first pilot customer live.
While there are now whitelabel providers, their business seems to have been very slow in 2011. It seems that the first areas where we will see some activity is possibly p2p equity. As for conventional p2p lending – the companies supplying solutions have become more sophisticated and at least one as adopted their price model. It is now more a revenue sharing deal rather than a big upfront payment, that most startups could struggle with.

Introduction of a p2p financed ‘credit card’ (probability very low)
I envision a p2p lending service where the borrower does not get a loan in one full amount initially but can access liquidity on demand (within a predefined credit line). From the funding side this would work somewhat like lenders investing in Ratesetter’s rolling monthly loans. On the borrower side the customer could either request an additional payout via a web-interface or more sophisticated the service could issue a branded credit card / debit card for that purpose, enabling the customer to access cash instantly on an ATM.
This concept has very interesting advantages as it allows the p2p lending service to build a durable relationship to the borrowers. And for the borrowers it offers the potential of lower rates on short term debt than the high rates credit cards typically carry.
Like the idea and want to discuss/develop it further? Self-promotion plug: You can hire me as a consultant.
Has not happened.

A bank will acquire an existing p2p lending service (probability <25%)
Carried over from last year – did not happen
2011 might see a bank (or other financial institution) buying a running p2p lending service.
Buying will be much faster, cheaper and risk-less than if the bank tries to build a new service.
Largest Italian private Bank bought at least a part. Continue reading →

Get Rid of Banks and Replace Them With P2P Lending?

wiseclerk 1 Comment

That’s a bid radical for me – and I would never demand that. But that’s the tenor of the paper ‘Get rid of banks and build a modern financial world!‘ by Richard Lenz.

He argues:

… This trend must now be continued in regulatory and economic politics: The web-based transferal of capital over Internet platforms will replace conventional banks step-by-step as an intermediary. That the web-based “peer-to-peer lending (P2P)” works successfully is documented by credit-platforms like “smava” in Germany, “Prosper” in the US, and “Zopa” in the UK.
Peer-to-peer lending over a web-based transfer-platform has vital advantages for the “players”:
+ P2P-lending is attractive for the investors (creditor) as well as for the credit user (debtor), because they can share the bank margin, meaning the difference between deposit and loan rates. The platform receives merely a transferal commission. These charges are much lower than the bank margin, because they do not have to finance fancy skyscrap-ers at great locations or bonus payments for investment bankers.
+ The platform only takes over the transferal and does not enter into a contractual posi-tion. Hence, there is no systemic risk, because risks are now peripherally distributed throughout the users.
+ In turn, investors can diversify the default risk by getting involved in various financing projects with small sums or by joining investor groups via the Internet.
+ Money’s undefeatable homogeneity makes it into a product, which is ideally suited for web-based transferals. The advances of information technologies can fully realize its economic benefits here. On the transaction platform, the application of information technologies will clearly increase the transparency, the competition and also the mobility of capital, in comparison to the oligopolistic bank market. Better transparency, increased competition and last but not least, the cessation of bank margins, reduce capital costs and simultaneously simplify accessing capital. From an economic standpoint, these advantages have the potential for a quantum leap within the economic growth of participating market economies.
+ Increased transparency, central processing, and documentation within the transaction platform considerably simplify controlling and supervising finance market transactions. The extensive public resources that have been used for controlling banks so far can now alternately be used to protect investors.

Changing the World Through Crowdfunding

Kanini Mutooni

Although women play a major role in the economic development of emerging economies, they have the least access to capital and credit compared to their male counterparts. Giving more credit to women has been mooted as one of the fastest ways to reduce poverty in emerging economies. The virtues of female entrepreneurship have been extolled over the last few years although a lot still needs to be done to make this a reality: without capital or credit entrepreneurship is hardly possible so this means that solutions need to be found that enhance this capacity rather than talk about it and do nothing about it.

Crowd funding is definitely one of the solutions that could be put forward that could increase the likelihood of increasing available capital to women. Crowd funding in this sense refers to the process of providing small loans to female owned businesses which enables them to expand and grow their businesses. This also means that they reinvest the proceeds of their business into the nutrition and education of their families which results in an increase in the quality of life of their society and community. This correlation has been supported by evidence from the World Bank and IFC stating that women reinvest 90% of their profits in the home whilst mean reinvest only 60-70%. Continue reading →

P2P Lending Expectations for 2011

wiseclerk

I always enjoy speculating what p2p lending developments might happen in the year to come and then look back in in the end to see how I did. I don’t dare call it forecast, because these are just my personal opinions, though in some cases it’s an educated guess based on what I know individual p2p lending services are working on at the moment.
Last year most of my predictions came true to some degree. Maybe they were not speculative enough – this year I’ll insert 1 or 2 developments with higher degree of speculation.

Advent of whitelabel providers (probability 100%)
Okay let’s start this with a safe bet. In 2011 there will be 1-2 companies offering a solution that can be branded and used by p2p lending services and / or p2p microfinance sites. The interesting question here is how the acceptance by potential customers will be. My guess is that it will be slow selling until the companies have set the first pilot customer live.

Introduction of a p2p financed ‘credit card’ (probability very low)
I envision a p2p lending service where the borrower does not get a loan in one full amount initially but can access liquidity on demand (within a predefined credit line). From the funding side this would work somewhat like lenders investing in Ratesetter’s rolling monthly loans. On the borrower side the customer could either request an additional payout via a web-interface or more sophisticated the service could issue a branded credit card / debit card for that purpose, enabling the customer to access cash instantly on an ATM.
This concept has very interesting advantages as it allows the p2p lending service to build a durable relationship to the borrowers. And for the borrowers it offers the potential of lower rates on short term debt than the high rates credit cards typically carry.
Like the idea and want to discuss/develop it further? Self-promotion plug: You can hire me as a consultant. Continue reading →

Banks Need to Understand Their Customer’s Needs Better – FAST

wiseclerk

I just finished reading Bank 2.0 by Brett King. If I would work in middle-management of a bank – any bank – then I would be scared now, because the book clearly shows that banks are changing to slow. Or they simply deny that the world around them is evolving faster and faster and still try to continue business as it used to be.

Banks still spend too much time trying to solve the wrong questions like how to design branches or think about channel distribution. What they need to understand is that a customized solution fitted to the needs the customer has right now is needed.

If bank management does not foster innovations quickly they will lose contact to the customer. Banking function will continue but the interface to the customers might in future be held by p2p payment providers, p2p lending services, telcos, aggregators or other non-banking “insurgents”.

The book is filled with ample examples and observations from the authors work experience in banking. Available at Amazon US, Amazon UK and Amazon DE.