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?

State of Selected P2P Lending Companies

More than 2 years have passed, since published the first overview table of p2p lending companies. At that time the focus was to create a comprehensive list and to get a perspective on the loan volumes.

Today I want to look at a smaller selection of p2p lending companies and do a rating on more factors than just loan volume. While I describe below what factors led to my rating, please note that the rating represents my personal opinion.

The table lists the companies in alphabetical order and gives:

New loan volume per month

This amount is in most cases retrieved from the last month(s) figures from the company websites (if they have statistic sections), and then converted into US$ at today’s currency exchange rates. In other cases it is a rough estimate by me based on volume figures published in media in the recent past. For CommunityLend I failed to find a per month figure (the total figure from launch to mid-February is here).


Extend and tone of press coverage in the past months. Since a large share of new users is introduced to p2p lending services via media, positive media coverage is extremely important. Continued positive media coverage has helped some companies to associate positive values to their brand.


This column especially rates if the new loan volume is growing continuously month after month. Furthermore it puts the absolute volume into perspective to the size of the market. It is obvious that absolute numbers in a country with a small population (e.g. Canada) will be much lower than those in a country with a large population (e.g. US). Furthermore it takes into account if the (online) marketing measures of the the company succeed in winning new borrowers and lenders (though in most markets lenders do not need to be actively acquired).


Sustainability rates a mix of several factors:

  1. ROIs for lenders / default rates
    Most p2p lending companies that failed in the past, did so as a result of high default rates which led to negative lender ROIs and caused massive lender churn
  2. Ability of company to raise new funding
    Most p2p lending companies still have to bridge a considerable time-span at their current growth rate before they become cash flow positive. The ability to raise more funding to finance continued operation is essential for their success
  3. Business model

User satisfaction

This rates the publicly voiced user opinion. Major factor are the comments in forums. To a lesser degree I took the user experience published in blog articles into account. The problem with lender experiences published in blogs often is that the writer is casting a positive image, since he earns commissions for newly referred customers through the affiliate program of the p2p lending site. Also these review are often written at the start of the lending activity at which point the lender’s ROI is naturally unharmed by the experience of defaults.

Empty fields: I had not enough information to rate these. E.g. with some of the new UK p2p lending companies I felt I had too few indicators to reach an opinion on the sustainability.

Availability of information also influenced the selection of companies. Due to language barriers including more services (e.g. the Japanese p2p lending companies) was not feasible for me.

CommunityLend Raises 1.5 Million CAN$

CommunityLend has closed a 1.5 million CAN$ private placement from several individual angel investors and an institutional investment fund. The proceeds of this private placement will go to scaling up loan origination, loan adjudication, and loan servicing operations, the company says, continuing:

This investment comes on the heels of a successful year since our launch as Canada’s 1st (and only) online consumer loan marketplace by CommunityLend Inc. Monthly loan volume has more than doubled each of the last 3 months and we are projecting this pace of growth to continue throughout 2011.

(Source: Communitylend blog)

CommunityLend Starts FinanceIt – Offers Sales Financing Solutions for Businesses

Canadian P2P Lending company CommunityLend has launched new site: FinanceIt. FinanceIt allows Canadian businesses to provide their own in-house financing directly to their customers. Initially FinanceIt targets home improvement vendors, a line of business in which FinanceIt says Canadians finance 51 cents on every dollar spent.

Features of FinanceIt include:

  • A complete lending platform, including ID verification, credit review, EFT, and collections
  • Instant approvals that are valid for 90 days
  • Automated legal documentation
  • Works on iPad and other mobile devices
  • Funds are deposited into our partner’s bank account
  • No fees of any kind

This is a highly relevant development for p2p lending. If successful, CommunityLend will achieve four goals:

  1. Increase loan demand while at the same time cutting marketing expenses/efforts to reach potential borrowers
    The promotion of the loan offers will be in fact done for free by the business that offers the financing for its goods
  2. Build strong business relationships to vendors, which can be broadened should CommunityLend develop more p2p banking products aimed at businesses in the future
  3. Identify borrowers in person (at the store)
    While I cannot judge how crucial this is in the Canadian market, it would be very useful in some other markets for p2p lending services to have
  4. Validate the purpose the loan is taken out for
    Usually in p2p lending unsecured loans can be used for any purpose the borrower wants. While some sites ask the borrower to describe the loan purpose in the listing this is never tracked or validated for it would be time-consuming and costly – just not worth the effort.
    In a financing solution it is obvious what the loan will be used for. How is this information valuable? Communitylend will have very good data on how default rates differ depending on the loan purpose allowing them in mid-term to improve the pricing of the credit risk into the offered interest rate.

I believe this is a major step for p2p lending coming out of a single product niche (unsecured loans) into a broader p2p banking approach. And banks should watch out. Offering financing solutions to businesses is a core product for some banks.

P2P lending marketplaces in other countries should explore if offering loan financing to businesses is a viable route for them to grow too. In fact I know one p2p lending company that already has similar plans in the working and will start financing in 2011. Continue reading

P2P Lending Site CommunityLend Adds Car Loan Cooperation

Communitylend has partnered with Canada’s largest used car site, now offering a car financing option through Communitylend for every listed car.

The option is limited to private listings in Ontario for cars with a sales price of up to 25,000 CAN$.

This is a good partnership for Communitylend as it will profit from increased exposure to potential borrowers.


Related Article: P2P Lending With Cars as Collateral

P2P Lending Sites in North America

Below is a map of the p2p lending landscape in the US and Canada. It shows active and discontinued p2p lending services (including p2p microfinance).

The fastest growing services are Lending Club, which funded 12 million US$ new loans in August, and Kiva. Prosper’s growth is stagnating. Other US based services are Vittana, United Prosperity, Zidisha (all microfinance) and People Capital (student loans). CommunityLend is the only p2p lending site active in Canada.

All of these marketplaces have been featured earlier in the blog. If you want more information about any of them just enter the company name in the search box on the top right of this blog.

Notice to other websites: You are free to copy and use this map, provided you agree not to alter or resize the image and you will set a link to this article.

Related resource: P2P Lending Sites in Europe (Map)