Interview: Globefunder to take p2p lending global

wiseclerk 4 Comments

GlobefunderP2P-Banking interviewed Brian Mullally, Co-Founder and CEO of GlobeFunder Ventures Inc. 

P2P-Banking: What is GlobeFunder about? When will it launch?

GlobeFunder:  GlobeFunder is about borrowers saving money and lenders making money.  And we are about small loan services being widely available to every person on the planet.  GlobeFunder‘s leadership focus is as a scalable provider of loan funding where it is needed most, at market-driven interest rates, with the highest levels of service, integrity and efficiency, so that not one person seeking a microloan in today’s marketplace goes without access to capital.  GlobeFunder’s US marketplace launches in October 2007 and internationally in select markets in November 2007. 

In the United States, the small loan market (as demonstrated by the credit card and payday lending industries, a more than $800B market in the US) is a segment that GlobeFunder’s lending marketplace of lower interest rates for borrowers and profitable opportunities for lenders will be attractive.  Borrowers on GlobeFunder are US consumers, with initial target markets focused on women, college students and higher credit quality clients.  GlobeFunder’s lending marketplace can scale by lowering capital costs for consumers, improving efficiency and providing market-driven investment returns for lenders.

Internationally, individual small loan borrowers are persistently underserved in today’s global marketplace.  GlobeFunder’s relationship with their local small banks and microfinance institutions will be utilized as a source of new loan funding for these providers of small loans.  

GlobeFunder’s team is talented and experienced in financial services, technology, consulting, legal, sales and operations.  GlobeFunder is located in Kalamazoo, MI, (Fast Company 50!) and is owned by its investors and founding management team which includes Brian Mullally, Chief Executive Officer; Benjamin Decio, President; and John Schoolman, Chief Operations Officer. 

P2P-Banking: What are the differences/advantages when compared to Kiva?

GlobeFunder:  Our for-profit, scalable marketplace where borrowers save money and lenders make money.  And where MFIs can access direct capital from lenders to grow their loan portfolios.  There needs to be more change in the small loan industry to make it a competitive marketplace for more people to get the loan funding they seek at rates that are the lowest cost possible.  Interest-free loans to MFIs don’t scale funding to drive enough lenders to a platform to make as much of an impact as can be done in a for-profit marketplace. 
The global microloan industry is still led by non-profit initiatives that over thirty-plus years have not provided the scale needed to meet global small loan demand according to GlobeFunder’s market validation as well as microfinance industry analysis and statistics.  Only by incentivizing MFIs, borrowers and lenders will there be sufficient capital in the system or at least try to keep up with 15-30% microloan growth rates.  Charitable loans are not enough, people need to be motivated by efficient interest-driven capital on both the borrower and lender side of transactions.  It makes for better business decisions and discipline. 
The rapid growth of the Internet in developing markets and new online financial transaction business models offer GlobeFunder’s opportunity to enter both the international and domestic markets as a disruptive player.  GlobeFunder’s creation of a new for-profit, global person-to-person loan system and a worldwide social network will command media and online marketing exposure as an innovative, unique product offering.

P2P-Banking: Do lenders earn interest?

GlobeFunder:  Yes they do and they will be incentivized by promotions and profits to keep lending more money too.

P2P-Banking: What initiated the idea to start a service like this?

GlobeFunder:  The high costs of small loans for borrowers which has constrained capital flows and kept funds from going to those who need it most, and using the internet to create connectivity and efficiencies that undercut the high margin earned by the credit card and retail debt industries, while at the same time helping everyday lenders make money was just too large an opportunity to pass up for our team. 

P2P-Banking: How large is the GlobeFunder team? You are currently looking for an EVP/Global Marketing Director?

GlobeFunder:  We have a large team across the globe given our leading loan origination, servicing and technology team partners.  Our local office team consists of four people with four more team additions coming soon including a talented marketing professional.  We are always looking for great people so let us know if you are interested.  Email:  comments@GlobeFunder.com. 

P2P-Banking: GlobeFunder Ventures is a private owned corporation? How is it financing its operations? Can you please describe your business model?

GlobeFunder: GlobeFunder is a privately held corporation owned by investors and our management team.  Our company earns fees in three ways:  lender servicing fees, borrower transaction fees and interest income on funds flowing through our system. 

P2P-Banking: The website currently only shows one Microfinance Institution (MFI) GlobeFunder is working with. Are you planning to connect with more MFIs?

GlobeFunder:  This website is to be entirely replaced and relaunched with our enterprise platform and network in September 2007.  We have connected with more than forty MFIs to date, and we will launch our services in a few targeted country markets this fall to drive loan funding to these MFIs from lenders interested in helping while also earning a return on their investment.

P2P-Banking: Where do you see GlobeFunder heading in the next 6 months?  The next 2 years?

GlobeFunder:   GlobeFunder over the next six months will be operating in three countries, including the US.   We target global small loan volume that is significant to make an impact in today’s marketplace where funds are scarce and players need to get motivated and moving forward in new innovative ways.  In two years we will be operating in a dozen countries. 

P2P-Banking: What is the greatest challenge to your success?

GlobeFunder:  Adding great team members fast enough.

P2P-Banking: What is the one thing you need to get to the next phase of  development?

GlobeFunder:  A world class team.  

P2P-Banking: What sites do you visit everyday other than your own?

GlobeFunder:  Wall Street Journal, Yahoo Finance, P2P Banking and my alma mater home pages (Georgetown (HoyaSaxa!!! and Notre Dame (GO IRISH).

Thank you for the interview.

Communication approaches of P2P lending services

wiseclerk 2 Comments

Today I will take a look at the communication approaches of Prosper, Lendingclub, Zopa and Smava. Since it is hard to judge the individual customer support these companies offer, the focus of this post is on the mass communication channels. To communicate their services to the lenders and borrowers the services can use the website's FAQ/tutorials, a forum, blog(s) and newsletter(s).

Prosper.com
Prosper has very detailed FAQs, which leave no aspect open. There are tutorials, videos and webinars. The Prosper forums are very active. While Prosper announce changes to the service in detail (here), the policy usually seems not to comment on individual users questions (except for the bug report section). Prosper seems to rely on users to communicate and educate each other in the forums. There has been criticism about censorship and deleted posts in the forums which led some users to set up an prosper independent forum.
As far as I can tell Prosper has no blog of its own, but there is a personal blog of the CTO John Witchel. But it is not very active and will probably not be found by the average Prosper user.

Zopa
The Zopa FAQs are detailed, too. The Zopa Forum is quite active with Zopa staff members responding to posts and questions. Zopa has a company blog which has a leisurely tone and often is offtopic. In my opinion it could get more informative for lenders or borrowers.
The same applies to the newsletters Zopa sends out.

Smava
Smava maintains a very detailed and good FAQ. The Smava forum is pretty quite, but Smava staff usually is responsive to user questions. There is no blog. Smava is only 3 month old and so far there have been only 2 or 3 newsletters, which were mainly a summary of developments.

Lendingclub
Lendingclub communicates very different from the others. Mainly it relies on it's blog which is in fact directly on the Lendingclub.com homepage. The blog is very active with up to 2 or 3 posts per day. Not only does it explain details of the lendingclub service but also has general advice on personal finance, e.g. on obtaining and maintaining good credit. Lendingclub has lots of guest authors contributing to the blog. The FAQ are somewhat hidden and only available to logged in users (unless you know the direct link). The information, when located, is detailed (e.g. states). As far as I am aware there is no Lendingclub forum.

My impression is that Prosper and Smava communicate in a style that appears more corporate and 'old fashioned' always pondering what information can be released and what for. Prosper has occasionaly received rather aggresive feedback of users, citing them of being non-responsive to the wishes of their users.  Zopa has a more buddying tone – hey take it easy. Lendingclub sounds educational to borrowers, aiming to help them by supplying them information. On the other hand Lendingclub's approach seems a little marketing driven, because their approach gains them search engine and blog visibility.

The situation of social lending in France

JeanChristopheCapelli 3 Comments

Infatuation with blogs, the rise of citizen newspapers (like Rue89) [FR], the rebirth of consumer associations (Que Choisir) [FR] or equally the expansion of BarCamps (BarCampBank was born in France) change deeply the relationship between French banks and their customers.

This new ecosystem gives more power to customers. The French Internet users have more technical solutions to run mortgage simulations or to compare the different offers on a loan.

Outside of France, new online services have already appeared where online lenders and borrowers can meet. These cyberbanks or P2P Banks (peer-to-peer or people-to-people) grow their success on lower rates and quicker processes. Following Zopa in the UK and Prosper in the US, P2P Banks have expanded in Europe with Boober in the Netherlands, Smava in Germany.

The reason for this is quite simple: traditional banks give a credit only to people with an excellent solvency profile; cyberbanks on the contrary lend to borrowers with good, or even mediocre profiles. And the average default on repayment has been lower than the bank-industry, so far. How do they achieve this ? Emulating auction sites like eBay, the borrowers and lenders assign scores to each other. Thus each participant has a strong incentive to uphold his commitment in order to keep a good score and to continue being part of the system.

For the time being, the development of P2P financial services in France meets 4 main points of resistance:

1. Banking regulation

The "Code monétaire et financier" (General Principles of Bank Regulation) is straightforward: "anyone except a chartered bank can perform banking operations in a regular fashion".

 

Nevertheless, nothing prohibits lending from an individual to another individual. Private individuals can lend on a personal basis to relatives or friends. These friendly loans can for example take the shape of a "Tontine" (a Rotating Savings and Credit Association).

Conversely, a bank is entitled to perform an activity relating to credit between individuals. But it is difficult to foresee the context where a bank would desintermediate itself and forgo handsome commissions…

2. Fear of over-indebtedness

The State, consumer associations, and consumers themselves live in fear of over-indebtedness. If credit for real estate is well accepted, credit for consumption purposes is much less widespread.

It should be noted however that French people are generally much less in debt than other Europeans and their situation does not logically support this fear (only 40% of people under 35 use the advantage of a cash credit, against of 70% in the UK). Some observers even regret the low penetration of consumer credit in France on the ground that economic studies show that it has a positive impact on growth.

3. A credit rate market that is both regulated by the state AND ultra-competitive.

From a general standpoint, the French market is ultra-competitive and interest rates are generally lower (yes, believe it) than in other European countries (the mean rate for amortizable loans was at 6.54% during Q1 2007).

Nevertheless, interest rates compensating risks can not go over the usury rate limit, as defined [FR] by the State (for amortizable consumption loans: 8.93% effective rate for a sum over 1.524 euros). This usury rate is a strong impediment for banks that would like to lend to atypical borrowers: students with no banking history, independent workers or small entrepreneurs with irregular revenues.

Since they cannot lend at a higher interest rate, these banks are not ready to take those risks. According to a study from the French Senate, roughly 15% of the population fails to qualify for credit because of this regulation on the usury rate. Providing credit to this fringe of the population would be like going after the long tail of credit.

4. The absence of positive credit scoring

In France, only banks have access to a history of credit operations. The positive records (historic records of credit to be reimbursed by an individual) are illegal in France where only negative records (historical records on banking operation bans or payment incidents) can and must be used when according a credit. The latter are penalty records that can only be accessed by banks and those unfortunate enough to be referenced in these records!

It must also be considered that credit risks are idiosyncratic to each country (culturally and functionally different). It is then difficult for a foreign company to properly evaluate risk in the French context and offer a competitive – and profitable – product in a already over-served market. (Let's remember the failure of Egg in penetrating the French market).

Risks for the lenders under the current conditions are very significant and would justify a higher remuneration (impossible because of the regulation on usury rates), or that the new entrant company would use a statistical rating of credit risks (which would require either a commercial agreement with a French bank, or the development of a reputation scoring as yet unheard of in France).

Conclusion

Nevertheless, despite all these barriers, it is likely that such a service will come to life in France within the next 3 years (when the corresponding European directives have been written and agreed upon – e.g. the new SEPA regulation: Single Euro Payments Area); either introduced by national actors (existing banks or financial organizations); or by new entrants (possibly involving partnerships with banks).

Quite a conundrum, but an outcome bound to happen anyway !

Authors : Jean-Christophe Capelli [FR]; translation provided by Frederic Baud [EN]. (Jean-Christophe & Frederic are two of the BarCampBank [EN] co-founders).