Do Your Friends Determine If You Are Creditworthy?

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?

What is Fidorpay and how is it Relevant to P2P Lending

Notice the headline of the article. I have chosen it, because I found it hard to describe what Fidorpay is. And Fidor itself meets the broad scope of questions, that the novelty service provokes, with a main FAQ of no less than 115 questions and answers. But I’ll try my best:

Fidorpay is a prepaid e-wallet that can be used via web or mobile apps (they currently have an iPhone app and are working on android). Once a user has transferred money into this account he can send money to other Fidor Pay users.

Sounds like Paypal? There are important differences:

  1. The Fidorpay system works nearly in real-time. That means money is credited to the receiver’s account within a very short time frame and can be used by him then. (Paypal offers fast notification, but it takes much longer for the money to be actually available in the recipient’s account for future transactions).
  2. Sending (and receiving) money is fee free
  3. Starting February, 1st 2011 Fidorpay users can now lend money via Fidorpay to ‘friends’

So how does the lending part work?

A Fidorpay user can ‘lend’ any amount between 5 and 500 Euro to anyone. This is possible even if the recipient does not (yet) have an account but his email-address or mobile phone number is know to the lender. Loans are interest-free. They do not have a fixed term, instead the lender can send the friend a request to repay anytime. Unlike sending money, lending is not fee-free; Fidorpay charges a one time fee of 0.49 EUR (approx. 0.68 US$).

Is this p2p lending then?

It is in a pure technical/infrastructural way, since it does enable one person to lend another person money (over a distance) via internet or mobile phone.

But it is not the p2p lending in the sense it is most commonly used in this blog for it lacks any marketplace and validation aspect. It only takes a lending process that would have offline taken place with cash handed over to a convenient online level. If the borrower refuses to repay the loan Fidorpay itself does not enforce the repayment in any way.

How is it relevant to p2p lending then?

Fidor with Fidorpay shows how an infrastructural footing for p2p lending could look that omits most of the conventional banking structure. Since Fidor has a banking license, some of the regulation requirements are solved. If all lenders and borrowers of a p2p marketplace would (mandatory) become Fidorpay users then all payments and repayments could take place inside the Fidorpay system. The process would become faster and transactions could possibly be cheaper.

Are we there yet?

Far from it. I think Fidorpay gives a glimpse of what mechanisms could be used in the p2p lending marketplace of the future. Since it is currently not a main banking connection of the customers, amounts in the wallets are small. And maximum transaction amounts are limited for security and regulation reasons.

But ‘conventional’ banks should watch out and p2p marketplaces should think and review what possibilities Fidorpay and potentially evolving similar services will offer them to advance their service.

Key data about Fidor and Fidorpay

Founded 2003 Fidor Bank AG commenced its banking activities in December 2009 and brands itself as a ‘community bank’ using web 2.0 instruments in combination with latest technology. Related video: Speech by Matthias Kröner at Finovate, London. Fidor Bank states 19,600 users at the end of 2010. The current number of users is approx. 23,000. It is unclear from the press statements if all users are paying customers.

Fidorpay is available to residents of Germany with a German bank account.

P2P Lending Technology – Make or Buy

The core ingredient a new P2P Lending company needs is a platform to operate on. The importance of the quality of the software used for the success of the business is high. Not only does interaction with the customer nearly exclusively take place via the interface the website offers, but ideally most processes that are to be conducted are built into the software.

Examples for these are interfaces to external suppliers of credit ratings, accounting functionalities and interaction with necessary bank accounts, possibly document input and handling functions (e.g. income verification).

Unlike other web 2.0 startups p2p lending companies cannot launch on a rudimentally developed platform and eliminate bugs and improve functions on the fly in beta. Customer expectations regarding security, correctness and reporting functionalities are rightly high when it comes to handling their money. The expectations of the users are set by the trustworthiness of online banking services.
Another factor is – depending on market – the regulation authority that might require proof for the reliability of the platform/processes

The management team has the choice between:

  • Developing the software inhouse
  • Hiring an external contractor to program the platform according to specifications made
  • Buying a tested and proven source code and use that as start for future development
  • Outsource the task to a whitelabel provider who provides the technical platform and future release improvements

Developing the software inhouse

The advantage is that the software can very specifically reflect the ideas and needs of the company’s founders. The disadvantage is the high risk to miscalculate time or budget needed.

Costs when starting from scratch are high. It has taken the p2p lending companies on average a year to develop their platforms. The SEC filings of US p2p lending companies reveal figures on software development costs.

Furthermore quality and performance issues might be underestimated requiring rework. Continue reading

Spanish Lubbus Announces Deployment of its P2P Lending Software in More Countries

In yesterday’s newsletter Spanish p2p Lending service Lubbus (see earlier coverage) has announced that it succeeded in deploying it’s platform to 5 additional countries.

Nuestra apuesta por los préstamos sociales persona a persona (P2P) ha ampliado fronteras. lubbus mantiene contactos tanto en España como en otros Países (actualmente cinco) para implementar nuestra Plataforma y nuestra Filosofía en dichos Países. Como siempre hemos hecho, nos basamos en tus opiniones, sugerencias, recomendaciones, etc para avanzar.

No further details were available.

Loanland update – p2p lending in Sweden

Loanland launched last December as the first p2p lending company in the swedish market (see ‘Loanland launches peer to peer lending in Sweden‘). Since then about 5.7 million SEK (approx. 0.75 million US$) loan volume has been funded .

Ville Vesterinen has published more information about Loanland in the ArcticStartup blog:

The company is currently providing unsecured loans to the Swedish market. The Swedish market for unsecured loans to households amount to around 160 billion SEK (around 16 billion EUR or 20 billion USD) at present and with unsecured loans to SMEs the figure is about 500 billion SEK (around 50 billion EUR or 63 billion USD). The market has grown 15% annually during the last few years.

Loanland is using an open source platform that it has developed, automating most of the processes. The technology is based on Java, J2EE, MySQL, Tomcat, Spring and Hibernate. The platform and auction engine allows individual and automatic bidding, electronic signatures, integrated credit scoring and efficient payments.

The company … has already over 10 000 members and 5 000 registered borrowers and lenders. They have 6 million SEK (600K EUR or 750K USD) deposited out of which 95 percent is lend out as loans. Quite significant number considering that the startup operates currently only in Sweden.

Nexx – P2P lending for Kiwis – gets 600,000 NZ$ in funding

No, not talking about fruits or birds here. Nexx.co.nz develops a p2p lending service in New Zealand. Nexx now succeeded in raising 600,000 NZ$ (approx 330.000 US$). Quite an achievement in the surrounding conditions of the credit crunch.

Nexx, an on-line social lending business being developed by four young entrepreneurs at business growth centre The ICEHOUSE, has raised $600,000 in funding from a group of angel investors including the ICE Angels, Venture Accelerator from Nelson and Sparkbox.

Nexx co-founder Ben Milsom says the funding will pay for development and promotion of the business which is currently awaiting regulatory approval. Milsom and his partners Glenn Riddell, James Wallace and Mark Catley expect to be able to launch their operation in early 2009.

The Nexx team started in 2007 and won the University of Auckland Business School’s Spark Entrepreneurship Challenge in September 2007. The prize was 20,000 NZ$ in seed funding and a nine-month tenancy in the Icehouse business incubator.
Ben Milsom, writes about the pre-launch process of Nexx at the Startup-Blog.

Nexx is developed based on an open-source ERP and accounting package Adempiere.

Continue reading

For Sale: P2P lending technology

Editor's note: This is a paid story (ad), written by a third party which I have agreed to publish, since I believe it fits the interests of the readership of this blog. I am not involved in the sale.

Company looks to sell all rights to its proprietary P2P lending technology. The company has been quietly in development for the past year, though has now decided to halt launch plans for undisclosed reasons.

The company has developed a complete P2P lending web application that will provide any aspiring P2P company with technology to support rapid deployment in any geographical market. It is based on the popular auction-style bidding format for lenders. The front end is fully branded, and sale can be made to include branding, or packaged as a white-labeled solution.

Terms of sale can be negotiated to include customization, enhancements, and project management / consulting.

This is an extremely rare opportunity to acquire the world's only out-of-the-box P2P lending system allowing the purchaser to enter the red-hot Person-to-Person Lending space.

All enquiries should be directed through the website at:
www.p2ptechforsale.com

Technical specifications, terms of sale, and all other questions will gladly be discussed under terms of a standard Non-Disclosure Agreement.

Serious enquiries only, please.