Entries in peer-to-peer (24)


First step of the Transcapitalist P2P Fund complete

Today I invested $250 with Pertuity Direct, a recent entry to the social lending marketplace. This is the first step in a plan to invest $1,000 total across 4 different p2p lending platforms to compare the experiences and returns. I'll update as the fund matures and share my experience with the hope of informing p2p newbies interested in entering the space and shopping among the services currently available.

What is the Pertuity Direct model?

The company takes a different approach to social lending (I use the term "social lending" rather than "p2p lending" consciously because it better describes their model and its the term that they use). Lenders invest into the National Retail Fund--essentially a p2p mutual fund--which composes all of the loans made through the website.  Through this structure, the Fund's investments are automatically spread out over a large portfolio of loans, providing a level of diversification usually not reached with p2p platforms.

What is my expected return?

Borrowers pay interest rates ranging from 8.9% to 17.9%. As borrowers pay back loans, investors earn returns. Pertuity charges a lending fee of approximately 3.17% 1.63% [Update: the Pertuity Direct team informs me that the rate for lenders is now 1.63%]. The service is too new to have information on default rates or average returns. [Update: The National Retail Fund now has preliminary figures up. The average interest rate is 13.5%]

What do I like so far?

  • High expected returns. 
  • Prime borrowers. The service requires a minimum 660 FICO score, but the average score is more like 740. Expected defaults are low.
  • Incredibly easy. I signed up, had my information confirmed, and invested $250 within 5 minutes. It will take 2-3 days for the loan to be finalized. I didn't have to screen a single borrower.
  • Predictable liquidity. Perpetuity offers the option to withdraw all of your money before the close-out date for a small 2% fee. Most other services require you to commit for the full term of the loan (often 3 years).
  • Full SEC-backing. This site did it right and waited until they had full SEC approval before launching. I feel confident putting my money with such a competent team.

What did I not like?

  • The experience felt distinctly "un-p2p". I went from start to finish without "meeting" a single borrower. The experience was simple and professional (which is good), but it was just like dealing with a normal bank.
  • Poor conveyance of information. Information is hidden within Pertuity Direct's site and that of its partner National Retail Fund. Prosper Lending Review's site helped.
  • $250 minimum investment. This is a sharp contrast to Kiva or Lending Club, where you can start with $25.

Ebay announces new plan for growth

As we've discussed before, Ebay is on a downward trend. The CEO John Donahue admitted as much the other day, saying "This business has continued to fall short of our expectations and customers' expectations."

With a new three-year revival plan, however, the e-commerce giant hopes to find its way up. Donahoe told Wall Street analysts that the company's greatest growth potential lies in its online payment unit, PayPal, and that it will need to re-evaluate how to integrate Skype into its business model (We're done apologizing for Skype"). There was no talk of the future of Microplace, a peer-to-peer microfinance platform owned by E-bay that offers an alternative to Kiva and the opportunity to earn interest on your investments.

Undoubtedly, the long-term opportunity for ecommerce is huge. Donahoe pointed out that e-commerce represents just 6% of real-world retail, but that it would rise to 15% or 20% in the next five years. The questions is whether Ebay is in any position to capture this growth or whether it will go mainly to better sites like Amazon.

In response to the CEO's announcement, the company's shares rose 4.8% to $11.63.


Can P2P Lending Help to Loosen the Credit Crunch?


Uncrunch America offers consumers a package of tools to help them handle the credit crunchPeer to peer lending sites have undoubtedly had a more prominent role in the context of the financial crisis. Uncrunch America” is a an effort by a group of P2P and social lending sites— namely Lending Club, Virgin Money, and On Deck Capital—to build an awareness campaign that aims to “help resolve the credit crunch and rebuild the economy by delivering consumers with secure, trustworthy tools and infrastructure to finance necessary expenses and make critical investments.”

Along with the three lenders mentioned above, the support team also includes providers of personal finance tools and credit education such as Credit Karma and Geezeo. ChangeWave, a global network of professionals, is also a part of the team and helps to provide marketing and public relations support.

What is this coalition’s secret weapon? By joining powers (read as bundling) they can provide useful and demanded services to the American consumer in this time of need. According to their website, since the start of the year Uncrunch has distributed over $US 74 million (this number represents the amount of money lent via Lending Club, Virgin Money, and On Deck Capital).

There is no doubt that the tightening of credit from traditional lenders has created an opportunity for social and P2P lenders. But are consumers grasping the opportunity presented by untraditional lenders? It seems that lack of borrowers is not the problem. However, two of the three lenders on the Uncrunch team depend on individuals to provide the finance for loans and in today’s worried financial picture it is no surprise that individuals might hold on to their money as tightly as banks. As with any investment, lending through untraditional lenders is a bit of a gamble but most people today have lost their appetite for risk.

Although Uncrunch America provides valuable services for borrowers, questions remain about how it can increase the supply of financing for loans. This is where the real “uncrunching” begins.

Flicker credit: Happy Haggis



P2P funding alternatives for small businesses

Entrepreneur Magazine suggests to small businesses 5 ways to raise money today. Among them: Turn to the Web. "For a small amount of working capital, try peer-to-peer networks, which marry lenders and borrowers online. Though it's a relatively new concept, "over the next three to four years, peer-to-peer lending will take a significant leap in providing necessary capital to small-business owners," says Steve Bloom, an advisor and the former chair at SCORE's Atlanta chapter."

Where to start? While waiting for Prosper to come back on-line, try Loanio, Lending Club, and Pertuity Direct.


Does appearance reflect creditworthiness on p2p lending sites?

Successful Prosper BorrowersA study conducted by Dr. Jefferson Duarte of Rice University sought to determine whether physiognomy-based prejudices about creditworthiness existed and, if they did, whether they were justified. To explore this issue, he used data provided by Prosper, a peer-to-peer lending hub, to determine whether analysis of a single photo provided by the borrower could help predict whether he received full funding of the loan and whether he would pay it back in time.

So do looks affect perceived creditworthiness? As the Economist profiles, the answer is yes. Even more interesting is that these perceptions correlated highly with the borrowers' actual credit ratings.

To explore the issue, the researchers paid assistants to analyze the pictures of thousands of aspiring borrowers on Prosper. The workers rated them, on a scale of one to five, on how trustworthy they seemed, and estimated the percentage probability that each individual would repay a $100 loan. They also made assessments of the borrowers' sex, race, age, attractiveness, family status, and obesity.

The researchers reached two main conclusions:

  1. People flagged as untrustworthy by the assistants were less likely to be offered a loan. To have the same chance of getting one as those deemed most trustworthy they were required to pay an interest rate that was, on average, 1.82 percentage points higher, even when the effects of historical creditworthiness were statistically eliminated.
  2. The assessments of trustworthiness, and of likelihood to repay a loan, made by the assistants correlated with potential borrowers’ credit ratings based on their credit history, even when the other variables, from beauty to race to obesity, were controlled for statistically.

So while Prosper is a relatively information-rich environment where potential lenders have access to complete financial profiles of borrowers including credit grades, income, employment, and assets, this study suggests that there is a substantial premium put on the subjective factor of perceived trustworthiness. For individuals who look untrustworthy, the "faceless bank" might be a better option after all.

An interesting aside offered by the researchers is that although attractiveness and trustworthiness are positively correlated, there is no evidence that attractiveness is related to the probability of a loan becoming fully funded. There are other physiology-based preferences at work.

And showing yet another emerging role for peer-to-peer platforms, the "assistants" used the researchers were in fact workers from the peer-to-peer market laborplace, Mechanical Turk (owned by Amazon). Peer-to-peer sites then provided both the source of data for the study as well as the independent evaluations and perceptions.


Kiva's astounding stats for this week

Amazing. This week alone at Kiva:

$1,035,800.00 lent

4,982 new lenders joined

3,277 entrepreneurs funded

1 loan every 17 seconds

 These niche peer-to-peer marketplace for entrepreneurs in developing countries is demonstrating incredible vitality in an otherwise dismal market


Ebay may be down...

...but foreign e-commerce sites are up. Check out MercadoLibre in Latin America and Gmarket in Korea.

The most popular p2p trend --commerce-- is clearly going global.

 Addendum: To clarify the comment from Tim, compare Ebay's stock performance over the past 3 months, with that of MercadoLibre . The blue line is the company (Ebay on the left, MercadoLibre on the right), and the red line is the S&P 500. Ebay's fall over the past month has nearly paralleled the S&P 5000, while MercadoLibre is proving resilient.


Friends asking you for money?

Mainstreet today offers good advice to individuals who are finding themselves in the position of would-be lender to friends and family who have fallen upon hard times: Make the loan official. And consider using an official peer-to-peer lending site to facilitate.

The trend of using peer-to-peer platforms for everything from charity to student loans is up: "Virgin Money USA, which administers loans among friends and family members, says the dollar value of loans outstanding has soared to $390 million. That's nearly double from October 2007, when the company launched." As we've profiled, Virgin Money offers a way to formalize loans between people who know each other, managing the transactions and hopefully, reducing some of the relationship strain.


P2P lending as a new trend in philanthropy

The Boston Herald today cites peer-to-peer lending as a modernizing force in the ancient practice of charity. At a time when the need for non-profit services is higher than ever, direct financial exchange between individuals is emerging as a critical way to connect the haves and have nots. The article explains:

"The Internet has also spurred on peer-to-peer exchange, a movement that has changed the way people think about charity. Many donors – particularly in younger and more progressive demographics like the Boston area – want to feel connected to the people to whom they’re giving, want to understand the specific need and how their gift will impact the recipient.

Sites such as GlobalGiving, DonorsChoose and Kiva allow donors to select a charitable project by topic (children, animals, climate change), geographic region (Bosnia, Zimbabwe, Guatemala), or specific project (classroom supplies, skills training, vaccines). This customized giving has made it possible to help others in ways not imagined just a few years ago."

Research suggests that people give to charity because they want to give back and to feel connected. Internet P2P venues offer an incredibly easy way to make those connections and to make a difference through sums as small as $25 loaned to a entrepreneur through Kiva to as large as you want to provide to help public schools through DonorsChoose. As the article states, charity is also big business --Giving USA puts the 2007 total at over $300 billion-- suggesting that p2p lending platforms have plenty of space to grow.

Flickr Credit: Benevolink


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