Peer to Peer Revolving Credit

Anders Brownworth 10 Comments

It always seemed to me that traditional banks tend to make most of their money on the backs of people that pay penalties for small errors rather than just charging for capital as their business model might otherwise suggest. Credit card companies seem to be doing the same thing, jacking rates to the maximum allowable limit if their customer goes late on a payment. All of this makes it look like the traditional banks and credit card companies are making money by being deliberately opaque, hiding their true cash cow of fees in fine print.

The peer to peer lending market has been exploiting the opportunity this opacity creates. Who would have thought these peer to peer lending sites had a chance against traditional banks? But borrowers and lenders warm up to them because they strive to become as transparent as possible.

But why do I have to get a loan for a specific need like an addition to my home? I don’t get a credit card for a particular need, its just so I have it if I need it. The reality is that the current peer to peer lending market is uncollateralized. I can’t go hold a chunk of a house ransom if a borrower doesn’t pay me back for a home improvement loan I gave him. I can’t “repo” the motorcycle I helped that guy in Utah purchase if he defaults, so what sense does it make that these are specific loans for specific goals? I’m merely making uncollateralized loans to individuals for whatever purpose they want. Its really just a bet on the person’s credit rating and “confirmed” financial situation.

So why couldn’t we think of it more like revolving credit? Why couldn’t I get a Visa or MasterCard from a P2P loan site instead? The P2P lending company would sponsor the process issuing a credit card to borrowers funded by lenders pooling their money. Adding to the existing P2P loan benefits, the lender makes more money because revolving credit interest rates are higher than “standard loans” and the borrower has much more clarity into the factors that can make his APR go down and credit limit rise over time. Continue reading →

News from Comunitae

wiseclerk 2 Comments

Spanish p2p lending service Comunitae.com has now been one months in beta phase.

So far 900 borrrowers have submitted loan applications and 260 lenders have communicated their intention to provide funding for the total of 110,000 EUR (approx. 80,000 US$). One factor named for the success of the beta phase is the high media attention. In recent weeks Comunitae was covered on CNN, Radio Nacional de España, Intereconomía, Onda Madrid Radio Canal Nou, 7RM, Media Capital, Europa Press, El Pais, El Mundo, Expansión, Liberty Digital, El Economista, Cincodías ABC, My Portfolio Investment, Capital, Politics economic reason, which, AVUI, Invertia, Soitu as well as over 50 blogs.

(Source: Comunitae newsletter)

Kickstarter – Pledge Money to Fund an Artist

wiseclerk 1 Comment
Kickstarter.com is a new crowdfunding platform where anybody can pledge money to support projects of artists, designers, filmmakers, inventors etc.

The artist describes his project and offers rewards based on the amount that is to be pledged. E.g. one example is the ‘Kicey to Iceland‘ project. Photographer Laura Kicey wants to make a 5 day trip to Iceland in June to take photographs in the northwestern fjords. She seeks sponsors for the amount of 350 US$. 15 backers have pledged money so far. They will be rewarded for their support by prints of the taken photographs.

Payment processing is handled by Amazon Payments. Other current projects include:

  • A quest to reunite the Kinks (a band)
  • Icons for IPhone
  • Designing and Producing a Plush Toy
  • A book on voting machines

IOU Central Files SEC Registration in Order to Open in the US

wiseclerk

IOU Central, headquartered in Kennesaw, Georgia, Wednesday submitted an SEC S-1 Registration filing in order to launch in the US. IOU Central did launch a p2p lending service in Canada in Feb. 2008 for a brief period of time before it was closed due to regulation constraints.

Barry Coleman, VP Marketing at IOU Central, told P2P-Banking.com earlier this year:

… we are getting ready to release an online marketplace that will revolutionize peer-to-peer lending. Our platform will give borrowers the benefit of a true marketplace that allows for better interest rates. The platform will also give lenders freedom in lending with our real-time bidding system. We have taken a lot of the good from the original IOU Central platform and added features that make it much better for both borrowers and lenders.

The registration filing shows the minimum requirements IOU Central will apply to borrowers (Equifax Vantage score of at least 670 and others) and the validation process (most borrower income, employment and occupation information will be self-reported and not verified). The interest rate is set by the IOU Central loan marketplace based on several borrower related criteria. There will be auction bidding by lenders (like at Prosper) and an auto-fund option. Furthermore lenders can set auto-bidding parameters.

IOU Central will charge lenders a servicing fee of 1% of the remaining principal balance. Borrowers pay a 2% loan origination fee.

Terms of the loans will be 1, 2 or 3 years.

Continue reading →