P2P lending in Canada, eh? IOU Central launches

Much like William Azaroff, I have been looking longingly South of the border at all of the new peer-to-peer lending services that Canadians can't utilize. Well, I can now personally test the Canadian P2P waters with a new service that launched in Canada this week—IOU Central.

I immediately setup an account, linked it to my credit union account and I am in the lending business. The setup process was dead easy, while still offering a number of security layers including e-mail verification and bank account verification.

It felt a little odd to offer up my social security number and my bank account number to a brand new entity that I only learned about hours ago. This will be the hardest thing for most people to get over.

I have only looked at the lending side of things so far. There are about a dozen people looking for loans—everything from debt consolidation to new appliances to funding a short film. The interface is clean and simple and you can easily finance a portion of someone's loan. I am looking forward to experimenting.

It's too bad that this didn't launch with a credit union affiliation like ZOPA did in the US. If it did have a credit union affiliation, I would feel more like I just setup "Tim's Credit Union" rather than the "Bank of Tim."

I was amazed at how fast I was able to setup my account and the fact that I did not need to leave my chair to do so. Credit union leaders need to take note and take action while the bankers stick to denial.

Tim

This P2P song sounds so familiar

My credit union and banking RSS feeds are full of peer-to-peer lending articles. It is early days and everyone is sussing out where P2P lending fits into the financial services landscape. If this topic is new to you, here's a Wikipedia definition:

Person-to-person lending or peer-to-peer lending is lending done between individuals circumventing the bank's traditional role in this process.

Community lending had the advantage that people's interpersonal relationships fostered increased fiscal responsibility. The risk was that without the benefit of diversification, when something went awry the entire community could suffer.

Lending through banks has benefited from scale and diversity. By pooling the available money supply and lending it out again, the impact of any one default would be trivial in light of the timely payment of the vast majority of the notes. The downside to this model is that it has introduced greater transaction overhead and removed community loyalty from the equation.

New ventures are seeking to blend traditional practices with new scale economies via online marketplaces. The marketplace serves many functions. Most notably it facilitates bringing borrowers and lenders together. Furthermore, it simplifies what might otherwise be a cumbersome process to properly document and service the resulting loans.

It is hoped not only that these new markets will be more efficient by removing the bank as middleman, but that factors leading to default can be mitigated by reintroducing a social component to the mix.

I have been following a number of P2P discussions with great interest. Between the arrival of Zopa in six US credit unions, the growing number of P2P players entering the North American lending space and the disingenous marketing tactics of some of these players, there is a forboding feeling that P2P lending is not a flash in the pan.

How does P2P lending affect your credit union? I believe it will have a huge impact in the not-too-distant future. You need to understand it and develop strategies to embrace it. It should not be ignored.

This feels like déjà vu. The emergence of P2P lending is eerily reminiscent of the early peer-to-peer music sharing days. Out of nowhere, a very young Shawn Fanning introduced Napster and the recording industry was changed forever.

Replace the young Shawn Fanning with the older, wiser and richer, Richard Branson, replace music with money and replace illegal with above board and you get the picture of the potential impact that P2P lending will have in the financial services world.

The music industry's answer was to use the law to take down Napster, use digital rights management to throttle the inevitable tidal wave of file sharing and litigate against the common man in hopes of striking fear into the general public.

This took the music industry's eye off the ball as legitimate players like Apple's iTunes, Rhapsody, eMusic and Amazon swept in to fill the void. The ultimate victor in this bloodbath is the consumer with ease of use and instantly available legitimate access to music. Mega record stores are soon to be a thing of the past.

What can we learn from this parallel musical universe? Where will your credit union be after the P2P lending music gets cranked up to 10?

Tim

The dinosaurs didn't have broadband, what's your credit union's excuse?

Many of the credit union technocrats that follow the blog-o-sphere will find this post old news. However, many top-ranking credit union executives seem sadly unaware of the impending onslaught of Web 2.0 financial service offerings quickly making what credit unions offer seem almost prehistoric.

While credit unions are busy guarding their market-share and fiercely competing against other credit unions and banks, there is a new breed of financial service offerings out there that may well pass the credit union movement by.

From the online free Personal Financial Management (PFMs) services like Wesabe, Mint and Jwaala to alternative lending services like Prosper, Zopa, Lending Club and Bill Me Later, these start-ups are for real and heavily funded by venture capital. Unlike their dot-com predecessors that dot-bombed, these new ventures have timing on their side. The Internet has matured to a place where broadband is the norm and the general public is comfortable doing business online.

And, with legitimate, innovative (and free) services that make sense and actually work, this new crop of financial services represent a huge threat to credit unions or a huge opportunity. The choice is yours. Here are 12 just to get your feet wet.

They have great names and branding, great websites and many of these services are using the social web to build like-minded communities that out-community most credit unions. So what is a credit union to do? 

1. First of all, be aware of what is happening in the world beyond your branch doors and your city limits. The best thing you can do is get educated on the myriad of new services popping up monthly. Here are three blogs to follow. All three follow this space very closely.
   • Netbanker
   • Bank Watch
   • Open Source CU
2. Stop trying to control your members online activities—they have Google and they are smarter than you give them credit for! The first reaction of your peers is to try to shield members from third-party services. The winners will be those credit unions that figure out how to work with these companies to provide the best value for their members. Make the calls and see how you can partner.
3. Think like a start-up. It's time to shed the best practices mentality and stop living in the past. Pull up your socks and start innovating and aligning your credit union with innovators.
4. Don't think this is just the realm of the young person. Did you know the average age of YouTube's participating members is over 45 years old? Everyone is getting more and more comfortable with technology.

These are exciting times. At the recent Partnership Symposium at FORUM Solutions, Robbie Wright asked an interesting question in a session on lending trends by Doug True. Robbie asked, "These start-ups seem so able to innovate compared to credit unions. What's stopping our credit unions from coming up with these ideas?"

Doug's response said it all, "Absolutely nothing."

Tim

BarCampBankSeattle: What I learned in session 3

Since it is coming up on one week since BarCampBankSeattle, I'll do two last posts about it. I get the sense that social web years are kind of like dog years—one week is actually equal to seven weeks. Much has been said and talked about this event; I guess that's what happens when most of the attendees have a blog!

Session 3 was simply titled Facebook. Since Trey Reeme from Trabian suggested the topic, he kicked it off by admitting to being a relative Facebook newby (me too) and invited discussion on what impact this social network will have on banks and credit unions. Lending Club popped up on Facebook a few weeks ago and has everyone watching and wondering how it's Facebook venture will pan out.

Discussion centred around whether financial institutions should be investing money in developing Facebook apps. I recently scrolled through the available apps and was amazed at the sudden and growing proliferation. This makes it really hard to get picked.

This line of discussion ended with the general consensus that although millions are flocking to sign-up, Facebook is primarily a place for people to express who they are and reconnect with old friends and find new acquaintances. One of the most insightful take-aways was that people define themselves by things like their music, their movies, their politics, their religious views and their other personal interests. Where they bank is totally off people's radar. Therefore, making a meaningful connection or impact in this space seemed limited at best for banks and credit unions. Ask yourself: do you even know where your closest friends bank? I didn't think so.

Using Facebook for more passive or low-overhead things like promoting events or causes seemed more appropriate (and affordable). Vancity recently posted an invitation to its BikeShare program that lead to a very successful launch. I posted about it here about a month ago.

Attempting to use the social web for outright advertising and marketing is not going to work. People can smell a sell job a mile away. Be authentic and tread cautiously.

Tim

P.S. I'm looking for a few more Facebook friends—I'm at 43 but I think you need to have more than 50 to be respected!