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Can Peer-To-Peer Finance Work?
Dotnaught writes "Two companies, Prosper and Zopa, appear to be convinced that social networking can be combined with borrowing and lending. They're intent on using eBay as a model for listing and bidding on loans without the involvement of a bank. Call it peer-to-peer finance. There are already some 800 groups on Prosper ready to loan money to specific causes, such as the Apple User Group, 'a lending group for those wishing to purchase either a Macintosh or Apple iPod.'"
With this announcement, we are now officially in an economic bubble.
Anybody can work under ideal circumstances. -- Jeff K. (January 4, 2001)
Peer to Peer financing has been around for decades. It is called a Credit Union.
These businesses may be entering a market that's already full of competition but I think the main idea is that regular people can loan small amounts of money, together effectively becoming as large a business as the existing businesses -- although the profits may be smaller, people aren't doing it for a living. Each person is giving a little, but they can effectively compete with large companies. (And losing $100 or so won't hurt the types of people who will invest money into P2P loans).
Although it might not be as large a benefit to investors, it could increase competition in an already competitive market and help borrowers to secure better loan terms. Hopefully, this could also help out people with poor credit ratings as there are more potential businesses to loan them money.
I think this P2P Finance will only work if P2P Muscle is also implemented at the same time.
Imagine if you can log on to BeatTorrent, hook up with a few peers living near your debtor, and get them to show your debtor some muscles.
Please stop entering code 2,2,7,6,6,4
Check out the loan requests at prosper.com -- lots of them include the borrower's age, ethnicity, gender, etc. either outright stated or inferable from the accompanying photographs. While Prosper as the lender of record only provides a credit grade based on an objective score from an Equifax report, the individual lenders are no doubt going to make (or not make) loans according to their own personal prejudices. The very fact that this information is available to prospective "loan buyers" (who are the actual lenders in all but name) will very quickly attract the attention of regulators.
I too have felt the cold finger of injustice.
But the very idea ignores what drives P2P: very low costs to the provider of service. Lending money is nothing of the kind -- there's a big default risk. You'd find P2P s3x to be easier!
To be honest, I know well I can trust the main banks
Study history. The ONLY reason you can ay that is because of regulations. Look back at the 30s- respected banks went out of buisness as much as anyone else.
I'm not competent to tell what banks are trustworthy. I'm not competent to tell what food won't give me botulism. I'm not competent to tell what products will do what they're supposed to and what won't. I'm not competent to understand cutting edge medicine. I may be able to pick up 1 of these, but there's a limited number of hours in the day- I need to keep up on my primary profession as well. And I'm at the high end of the intelligence curve, I'm far more capable than the average person. The average man would be completely and utterly fucked.
The government regulations are the only thing that enables me to go down to the store and have faith in my purchases. Without that, the economy falls apart. Government regulations are a good thing. Regulations on banks are a damn good thing, they ensure my life savings are safe. There's a reason why prior to regulation most people kept their money under their mattress or someplace similar- they couldn't trust banks. The world is a better place for these changes.
I still have more fans than freaks. WTF is wrong with you people?