Do Your Friends Determine If You Are Creditworthy?

wiseclerk 4 Comments

A new US patent filed claims that may be a good idea! The patent application “System and method for assessing credit risk in an on-line lending environment” describes a risk assessment method, where the first level links on a social network would be checked for a borrower. It aims to derive insights from looking at the age and “activity” of these first level contacts.

Does What Your Friends Say About You Determine If You Are Creditworthy?

In a step further the method suggests to “invite linked users to provide a personal endorsement of the borrowing party; sending an endorsement invitation to identified users; and receiving endorsements from the identified users, the endorsement providing a rating of the user trustworthiness based on a numerical scale; determining and aggregate endorsement score from received endorsement which is included in the assessment score”

Assessment score to be used as one of several criteria

The patent filed by Canadian company Neobanx Technologies, Inc was previously already filed in Canada. Inventors Ronald N. Ingram, Dylan Littlewood and Aston Lau describe the whole process with assessment score and endorsement score being only 2 of multiple elements that are used to assess the risk.

The potential problems with using data from social networks for the purpose of risk assessment in p2p lending were already described in detail in the article: “For Debate: Can Data from Social Networks be Used to Reduce Risks in P2P Lending“.  I still think that social network data could be used to some degree as additional data for lenders – but not to the degree this patent seems to imply.

It would be most interesting to see this implemented and monitor how it works out.

What is your opinion, dear reader?

Study Shows Women P2P Lenders Not More Risk-Averse

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Are women more risk-averse then men when it comes to lending money to strangers via p2p lending services? A recent study by Nataliya Barasinska, analyzed what impact gender has on the investment decisions. In the study, which was supported by a grant by the European Commission, she looked at bidding and loan data of the German p2p lending service Smava for the time span from March 2007 to March 2010.

Women are a minority among lenders, but are no more risk-averse than men

Only about 10% of the lenders at Smava are women. But they do not perceive and react to risks differently than men, when it comes to picking loans for investments. Continue reading →

Friendsclear Temporarily Halts Operations Due To Regulation Issues

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Regulation is an often met obstacle to p2p lending. This time Friendsclear in France is affected and has announced a temporary stop to new loan funding. The Banque de France has requested changes in the operating procedures that Friendsclear and its banking partner Crédit Agricole use.

Friendsclear expects the suspension of funding of new loans to last at least one month. Servicing of loans already funded in the past is unaffected.

Fundingcircle Raises £2.5 Million Funding From Index Ventures

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British Fundingcircle.com has announced the closing of £2.5m of Series A financing from Index Ventures, co-investors and existing shareholders.

Since Funding Circle launched in August 2010, more than 4,000 businesses and savers have signed up, with 11.5 million GBP offered to businesses to date. Currently, lenders have collectively earned 120,000 GBP in interest with average yields of 8.3% with access to their funds through Funding Circle’s secondary market. fee from lenders and 2% fee from borrowers. Yield is calculated before fees, tax deductions and bad debt. To date, no businesses have defaulted on loans and therefore no bad debt has been incurred by any lender.

Samir Desai, co-founder of Funding Circle, said: “We are delighted to welcome such a prominent and well respected investor as Index Ventures as a shareholder in Funding Circle.”

Friendsurance – First P2P Insurance Concept Launched

wiseclerk 3 Comments

It was only a matter of time, that the p2p concept would be applied zo the insurance sector. Friendsurance does just that. You invite your friends and relatives, and they agree to cover part of the damage. In exchange Friedsurance claims that you can save up to 50-70% of the insurance costs.

At the moment Friendsurance offers general liability insurance, household contents insurance, legal expenses insurance and and cycle insurance.

How does this p2p insurance work?

Each of the invited friends will have to contribute 20 EUR in case an insured damage occurs. The remainder of the damage amount is covered by a conventional insurance.

Friendsurance says the costs savings are substantial since the concept:

  • prevents fraud
  • prevents misconduct (through social control)
  • eliminates sales costs
  • discourages claims for small damages
  • lowers administration costs

I am sceptical about the concept for two reasons:

  1. I very much doubt that anybody will want to involve friends and family in claims settlement, especially if his neglience caused the damage. It seems awkward for all involved.
  2. Currently there is only one insurance company actively offering lower rates (Friendsurance has set up a way for this concept to wiork via bonus payment even if the insurance company is not actively participating).
    The whole concept looks to me as if a comparison portal for insurance rates has been pimped up with a nice p2p story that helps in PR and marketing – but the main business model is to refer customers to insurance companies.

But I’m willing to be proven wrong and will take another look in a year or 2 to see how Friendsurance develops.

CARE Runs Lendwithcare Microfinance Platform

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CARE International UK runs the p2p microfinance platform Lendwithcare.org. For a minimum investment of 15 GBP anybody can help funding a loan to entrepreneurs in Africa or Asia.

Lendwithcare has partnered with local MFIs in Benin, Togo, Philippines, Cambodia and Indonesia that disburse the loan to the borrower. Lenders do not receive interest. Aside from the default risk (Lendwithcare claims less than 2% bad debt) lenders also bear the currency exchange rate risk. Lenders do fill their account via Paypal or credit card, withdrawels are through Paypal.

Though the concept closely resembles Kiva’s, it is interesting to see the approach used by a long-time established aid and development organisation. The site shows the experience CARE has with marketing and fundraising. It looks much more flashy (at least compared to the old Kiva page).

Lendwithcare was launched in April 2010. Since then 243 loans were funded. At the moment there are about 32 loan request by entrepreneurs listed.