Ebay style bank!! - Tilted Forum Project Discussion Community

superiorrain · 03-11-2005, 02:02 PM

Quote:

BBC NEWS

If the world was run like eBay

By Jonathan Duffy
BBC News Magazine

The launch of an eBay-style banking website this week, where users lend to and borrow from each other, is the latest step in what is being seen as a quiet consumer revolution.

Strip away the peripherals from eBay, those layers of functionality that help its millions of loyal users navigate around the site, and what are you left with? A bunch of people selling things, on one side, and another bunch of people, on the other side, wanting to buy.

Unlike most of its competitors eBay does not stock anything. It merely facilitates an exchange by putting buyer and seller in contact with one another (and, for the privilege, takes a slice of commission on each sale).

In e-commerce circles it's widely seen as the perfect business model - a sort of physical manifestation of the peer-to-peer (P2P) networks, such as Kazaa, that allow online sharing of music and movies. The bosses at eBay need not dirty their hands with tiresome things like stock management, distribution and after-sales service - they leave that to us, the users.

This week saw the latest twist on what's come to be known as the "eBay model" with the launch of Zopa - an online loans service that works in a similar way. Anyone with some spare cash can offer it up for a loan, through Zopa. Lenders set their own interest rates and can choose which borrowers to lend to, based on their credit rating.

Borrowers, meanwhile, can pick a rate that's right for them and because Zopa is simply assisting the transaction, not lending its own assets, it claims to take a smaller cut (1% of the amount borrowed) than a bank. Safeguards are built in to help prevent lenders being fleeced and the whole outfit is sanctioned by the FSA - Britain's financial services watchdog.

Both sites exploit the internet's power as a matching tool - its ability to bring together geographically dispersed people with a common interest.

So far, so what?

From the earliest days of the net, pioneers championed its potential for shaking-up established orders. An early buzzword was "disintermediation" - the net's promise to cut costs by wiping out middlemen and matching consumers with suppliers. So, today, travellers book flights directly with airlines rather than travel agents.

But with the likes of eBay and Zopa the internet is the middleman, a valuable go-between that matches millions of individual buyers and sellers.

Such sites owe their success to a snowball effect - the more people who use them, the more they have to offer and so the more attractive they become to other users, says Will Davies, a researcher at the IPPR think tank.

We've just scratched the surface over how much trade we are going to see on the net and you will see a lot more [eBay-type] sites
Venture capitalist Johan Brenner
For them to take off they require a critical mass of members, which probably explains why although eBay has been around for a decade it's only recently started to seed itself in the mass British consciousness, as millions of Brits have embraced the net as another everyday tool.

"Internet penetration is the key to the success of these sites," says Johan Brenner, of venture capitalists Benchmark Europe, which has invested in Zopa and several other P2P sites.

The eBay model is starting to prove itself elsewhere, threatening to revolutionise consumer society. Bookmakers are being challenged by the British site Betfair, which enables two people, anywhere in the world, to bet against each other. Betfair takes a slice of all winnings, but this is less than a bookies' commission.

Another British site, Adultwork, operates in an extreme fringe of consumer society by providing an online exchange for sex workers and clients. Suddenly, the pimp is redundant.

A cornerstone of these P2P sites is trust, says Will Davies, who notes the similarities between Zopa and the credit unions of the 19th Century. Where these ensured trust among investors by staying local, the eBay model gives users a reliability rating.

Small ads imitator

"The technology records past behaviour so users can trust each other in future transactions," he says. "It's one of the internet's social functions - to instil trust in one-off interactions which would be lacking in a face-to-face environment."

Gumtree.com co-founder Michael Pennington would disagree. It strips back the eBay model to its rawest form, offering an online equivalent of small ads, with sites limited to geographic areas.

Having started in London, advertising flatshares, it runs sites across 10 UK cities and has expanded to Australia, New Zealand, South Africa and the Middle East, and includes job ads, lonely hearts and "stuff for sale".

Unlike eBay, transactions have to be done face-to-face - something that appeals to users' sense of trust, says Mr Pennington. But it relies on the same principle - a community of users. Instead of online rating, Gumtree keeps users loyal by scanning all adverts that go online, with an eye to weeding out potential cons and come-ons.

"It's important to get real adverts from real people. By raising the bar and making it difficult for scammers, they're inclined not to bother and go elsewhere," says Mr Pennington.

In a similar vein is FreeCycling - an American-inspired site whereby users give away disused household goods for free.

Wholesale benefits

Johan Brenner believes the eBay model could spell a consumer revolution. "We've just scratched the surface over how much trade we are going to see on the net and you will see a lot more [eBay-type] sites."

So where next for the eBay model? Mr Davies foresees a future for labour markets, with self-employed folk - plumbers, decorators, etc - offering their skills through an eBay-type exchange, and being subject to user rating. Keen.com is a perhaps an early example, with psychics and tarot card readers offering their services, with a per-minute consultation rate that reflects user feedback.

The man behind Zopa, Richard Duvall, believes his model will work because it brings the benefit of wholesale markets to ordinary people. Where companies once loaned from banks, they now go to the bond markets where lenders tender for their business. The Zopa model does a similar thing for anyone who wants a loan.

"It's all about being in control," says Mr Duvall. "As a lender you choose your risk and what return you want, then it's a case of does anyone out there want to meet you on those terms."

Now when i came across this, i must admit i thought that's a crazy idea but on reflection maybe it isn't. Seems like a good alternative to a bank and if the right measures are put in place to keep it secure then surely it could work couldn't it?

yatzr · 03-11-2005, 04:02 PM

How many people are gonna lend enough money to buy a car or a house?? I see it being nothing more than like the small cash advance places. It would be cool if it got big though.

MSD · 03-12-2005, 05:29 AM

This is quite fascinating. It will be interesting to see who this works out in the long run.

iccky · 03-12-2005, 09:24 AM

Quote:

Originally Posted by yatzr

How many people are gonna lend enough money to buy a car or a house?? I see it being nothing more than like the small cash advance places. It would be cool if it got big though.

Maybe they'll pool together smaller loans that offer simmilar terms to create one big loan?

I think this is incredible, if done properly. I'd be interested to learn what safeguards they have for the lenders. Also how much information you get to learn about the potential borrower (more then just credit score?) before you decide to lend.

Lockjaw · 03-12-2005, 01:44 PM

This has potential for massive failure and massive success. If I had a decent sum of money stacked up some place I don't think it would be a bad investment to loan it out to somebody reputable who will pay it back but will give me say 5% extra after fronting the money. One could start small and if enough business picked up you could go larger or as has been suggested a group of people could pool a substantial amount of money lend it and then split the intrest profits amongst themselves. That kind of model would keep the fiscal impact on a single person small,it would give people access to large sums at more reasonable intrest rates and terms than a bank would give them.

But the downside for people defaulting on a loan or something I would imagine would be much higher at least in the early years of such a concept as people would likely think(wrongly) that since it's an individual it would be easier to worm out of their loan and it would be harder for an individual to soak up such an impact.

mazagmot · 03-12-2005, 02:14 PM

I wonder if you could get a house loan or similar by just borrowing from several people separately? Instead of the lenders pooling money, the borrower would. Might be kinda hard convincing someone to give you a 20 yr loan on $200 tho

iccky · 03-12-2005, 03:52 PM

I actually visited their site and did a bit of research. It works a bit differently from what you might expect.

Basically when you join Zopa gives you rating, based on your credit rating, that decided what market you will be able to borrow in. There are high risk markets, medium risk markets and low risk markets. I imagine they take into account how much you are asking to borrow as well, though it doesn't say that on the website.

When you loan out money you don't loan it to specific people. Instead you select a loan amount (minimum 500 pounds), a duration for the loan, an interest rate and a market that the loan will go into. So, for example, if you're into high risk/high return you might lend 1000 pounds for 12 months at 10% interest in the D grade market. They match you up with people who accept those terms.

Additionally, you don't make your loan to just one person. Instead they divide your loan among 50 people who want to borrow money for that duration at that rate in that market. This spreads the risk around so that you won't lose everything if a borrow defaults. And, again, you don't choose the people you lend to, the computer selects them automatically.

Finally, they treat the debt much as banks do. They checking credit worthiness before lending. If a borrower defaults, Zopa goes after them on behalf of the lender. If the money can't be recovered, Zopa sells it to a debt collection agency and returns whatever they get for the debt to the lender.

Sounds interesting. If I had money to throw around and lived in the UK I might try it.

Cynthetiq · 03-14-2005, 10:22 AM

in some places it doesn't take a lot to start a business... micro loans as the media has called it, less than $1,000.

interesting idea, but then how does one enforces collecting?

optik_nerve · 03-14-2005, 10:29 AM

Quote:

Originally Posted by Cynthetiq

but then how does one enforces collecting?

The Mob..

Maybe I could get a student loan...

iccky · 03-14-2005, 02:25 PM

Quote:

Originally Posted by Cynthetiq

in some places it doesn't take a lot to start a business... micro loans as the media has called it, less than $1,000.

interesting idea, but then how does one enforces collecting?

They do it just like normal banks, report deliquient loans to a credit agency, send a bunch of letters, then sell the debt to a collection agency that will harrass you till you can't answer your phone or door.

It sounds like their 1% cut is for doing all the administrative parts of the loan (collecting payment, passing it back to the creditors, rating potential borrowers and going after deliquent debt).

I suppose they might not pursue bad debtors with as much vigor as a normal bank as it isn't technically their money.

the_marq · 03-14-2005, 02:34 PM

So from Iccky's description you are not so much lending money to a person, as you lend money to the site and they lend that money to any number of people. So it's a little different than eBay in that respect.

I can see this graduating into a new form of low-risk investment once critical mass is achived and the service really takes off. It's quite brilliant really.

03-11-2005, 04:02 PM	#2 (permalink)
yatzr Insane	How many people are gonna lend enough money to buy a car or a house?? I see it being nothing more than like the small cash advance places. It would be cool if it got big though. __________________ Mechanical Engineers build weapons. Civil Engineers build targets.

03-12-2005, 03:52 PM	#7 (permalink)
iccky Psycho Location: Princeton, NJ	I actually visited their site and did a bit of research. It works a bit differently from what you might expect. Basically when you join Zopa gives you rating, based on your credit rating, that decided what market you will be able to borrow in. There are high risk markets, medium risk markets and low risk markets. I imagine they take into account how much you are asking to borrow as well, though it doesn't say that on the website. When you loan out money you don't loan it to specific people. Instead you select a loan amount (minimum 500 pounds), a duration for the loan, an interest rate and a market that the loan will go into. So, for example, if you're into high risk/high return you might lend 1000 pounds for 12 months at 10% interest in the D grade market. They match you up with people who accept those terms. Additionally, you don't make your loan to just one person. Instead they divide your loan among 50 people who want to borrow money for that duration at that rate in that market. This spreads the risk around so that you won't lose everything if a borrow defaults. And, again, you don't choose the people you lend to, the computer selects them automatically. Finally, they treat the debt much as banks do. They checking credit worthiness before lending. If a borrower defaults, Zopa goes after them on behalf of the lender. If the money can't be recovered, Zopa sells it to a debt collection agency and returns whatever they get for the debt to the lender. Sounds interesting. If I had money to throw around and lived in the UK I might try it. Last edited by iccky; 03-12-2005 at 03:53 PM.. Reason: spell checked

03-14-2005, 10:22 AM	#8 (permalink)
Cynthetiq Tilted Cat Head Administrator Location: Manhattan, NY	in some places it doesn't take a lot to start a business... micro loans as the media has called it, less than $1,000. interesting idea, but then how does one enforces collecting? __________________ I don't care if you are black, white, purple, green, Chinese, Japanese, Korean, hippie, cop, bum, admin, user, English, Irish, French, Catholic, Protestant, Jewish, Buddhist, Muslim, indian, cowboy, tall, short, fat, skinny, emo, punk, mod, rocker, straight, gay, lesbian, jock, nerd, geek, Democrat, Republican, Libertarian, Independent, driver, pedestrian, or bicyclist, either you're an asshole or you're not. What's the best nation in the world? DO-NATION!

03-14-2005, 02:34 PM	#11 (permalink)
the_marq All hail the Mountain King Location: Black Mesa	So from Iccky's description you are not so much lending money to a person, as you lend money to the site and they lend that money to any number of people. So it's a little different than eBay in that respect. I can see this graduating into a new form of low-risk investment once critical mass is achived and the service really takes off. It's quite brilliant really. __________________ The Truth: Johnny Cash could have kicked Bruce Lee's ass if he wanted to. #3 in a series

03-12-2005, 05:29 AM	#3 (permalink)
MSD The sky calls to us ... Super Moderator Location: CT	This is quite fascinating. It will be interesting to see who this works out in the long run.

03-12-2005, 01:44 PM	#5 (permalink)
Lockjaw Junkie	This has potential for massive failure and massive success. If I had a decent sum of money stacked up some place I don't think it would be a bad investment to loan it out to somebody reputable who will pay it back but will give me say 5% extra after fronting the money. One could start small and if enough business picked up you could go larger or as has been suggested a group of people could pool a substantial amount of money lend it and then split the intrest profits amongst themselves. That kind of model would keep the fiscal impact on a single person small,it would give people access to large sums at more reasonable intrest rates and terms than a bank would give them. But the downside for people defaulting on a loan or something I would imagine would be much higher at least in the early years of such a concept as people would likely think(wrongly) that since it's an individual it would be easier to worm out of their loan and it would be harder for an individual to soak up such an impact.

03-12-2005, 02:14 PM	#6 (permalink)
mazagmot Crazy Location: S. Korea	I wonder if you could get a house loan or similar by just borrowing from several people separately? Instead of the lenders pooling money, the borrower would. Might be kinda hard convincing someone to give you a 20 yr loan on $200 tho