Crowdsourcing consumer loans can bolster business growth and reduce crime
"It originally developed with households that are seeking unsecured loans being financed by other households. That's all it is: crowdsourcing consumer loans," said William Bazley, assistant professor of finance at the University of Kansas.
In his new article, "The Real and Social Effects of Online Lending," Bazley examines the fledgling industry, analyzing data that reveals why this modern method of borrowing is proliferating. He recently won the award for Best Paper on FinTech at the Northern Finance Association conference in Vancouver.
"When traditional credit becomes scarce, such as when banks merge or there's a natural disaster, having access to these markets and loan products moderates some of the decline in new business establishments," Bazley said.
He explains how these loans temper the effects of traditional credit scarcity by supporting small business growth. There are also social welfare implications. When conventional credit markets have frictions—something that prevents a trade from being executed smoothly—economic vitality suffers, and crime increases.
"In communities that can borrow in online peer-to-peer lending markets, the drop in economic growth is less severe. And the jump in crime is also moderated," Bazley said.
The first peer-to-peer lending in the U.S. appeared in 2006. The industry soared when banks refused to issue loans during the financial crisis of 2007-2008. Currently, Lending Club and Prosper are the two most successful of these companies.
As of 2016, they've originated about $100 billion in personal loans. According to a Price Waterhouse Coopers study, it's expected by 2025 these markets will generate about $150 billion in volume per year.
[...]More information:
The Real and Social Effects of Online Lending: https://docs.wixstatic.com/ugd/113ef3_2b246ea4acdc4ad5abc71e5a90c76716.pdf
(Score: 3, Insightful) by Anonymous Coward on Sunday October 13 2019, @01:44PM (4 children)
a credit union?
(Score: 0) by Anonymous Coward on Sunday October 13 2019, @02:35PM (1 child)
As I read the story I was thinking the same thing. However you might not have it quite right?
a) credit union on a computer network, or,
b) credit union in the cloud.
(Score: 0) by Anonymous Coward on Sunday October 13 2019, @02:46PM
On the internet is very special. If you ever take bribes make sue you do not use the internet to do it, because it makes the crime worse:
> Both men were charged with using the internet to carry on unlawful activity.
https://www.nola.com/news/courts/article_88974ad8-bfad-11e9-829a-b39eeef570d2.html [nola.com]
(Score: 0) by Anonymous Coward on Sunday October 13 2019, @09:18PM
This is not a credit union, based on the description in TFA. This sounds closer to a Savings and Loan Association (which still exist, but tend to stay away from that name due to the S&L crisis).
Credit unions are non-profit, cooperative, deposit institutions. They are free to generate income using various financial instruments, although they are usually loans or investments, and distribute the profit to their members by money-share.
Savings and loans, on the other hand, take the deposits of members and loan the money to other individuals. The members get paid directly from the interest on the loans their deposits funded, with the excess being S&L profit. There are also other differences between credit unions and S&Ls in who can be creditors, debtors, management, ownership, etc.
(Score: 3, Interesting) by JoeMerchant on Sunday October 13 2019, @10:10PM
Credit Union is the only kind of bank I can consider using - the commercial banks are so blatant with their fee grabbing and benefit squeezing.
No, these seem to be more oriented toward credit for those who can't get loans from Credit Unions - I'm not sure who they appeal to other than those who "believe in the cause" - and the cause may well be good and just, but from a pure dollars and cents side, what I saw was: unsecured personal loans in the 24%+APR range, and HELOCs in the 6.5%+APR range, with most of the loans available to invest in the unsecured side, paying "average" returns of 3%-7% APR to the investors, and supposedly a 1% "off the top" margin to the intermediary who is assuming no risk in the transaction.
So, if the APR is costing the borrower 24%+, but the lender is only netting, on average, ~5%, that's a pretty high risk proposition for the lender. The intermediary fees are almost in the noise, and the loans I saw available for investment in the portfolio tended to be 3 year terms for what appeared to be auto purchase amounts ($10K-20K). As a lender investor, you can spread your risk in $25 increments across as many of these high risk loans as you choose to, at least with one of the P2P loan services, but, with each new borrower you engage, there's a new chance for default, and these people are providing no documentation of income, typically have a history of late pay, and are desperate enough to be paying 24% APR on a car loan... there's good reasons why the average return is down around 5%.
I suppose, given the risk profile, one has to charge these high APRs to attract any kind of investors, even do-gooders who believe in helping the little guys. I can't really believe I'm helping the little guy if I were on the receiving end of 24% APR - I'd much rather than the little guys at least document their income to reduce the risk profile a bit more, but I didn't see that option out there.
🌻🌻 [google.com]
(Score: 0) by Anonymous Coward on Sunday October 13 2019, @02:33PM (1 child)
...but again, it died a death that nobody saw coming - something I've been trying to get across to my friends. With the playing field becoming so leveled by technology, money can flow freely like water to wherever it needs to go, all that the person in need must have is an electronic device and a salespitch or a network of friends who show interest. Crowdfunding wherever it happens, via Patreon, Kickstarter, Venmo, free money via Superchats, the technologies behind Bitcoin and blockchain, hell, even throwing money at live pornography, all of these collectively killed "Capitalism" by being even more Capitalist by allowing more access to information and thus allowing pricing information and value information to travel very quickly, and this makes it harder for singular manipulators to have a grip on the market. In fact, a Trump tweet is a better market manipulator than a smoke-filled room stuffed with fat cats these days precisely because of this information flow. Yes, people can easily game this system, but as time goes on the kinks will naturally be ironed out by economic and social Darwinism - not to say that this can't get ugly, but even Trump tweets will lose their potency eventually. (In fact, the "boom and bust" cycle is precisely what keeps markets nominal. What you want is more corrections more often to keep things in check, something that free information flow can provide better and faster.)
TL;DR: Capitalism killed itself by allowing increasingly wider market access and ever-faster information flow.
(Score: 1, Interesting) by Anonymous Coward on Sunday October 13 2019, @02:42PM
It's just people routing around the overregulated TBTF banks that only exist because they are propped up by our socialist government. If anything this is an example of free markets struggling back despite the government and central bankers doing all they can to prevent it.
I kind of like this p2p lending idea because it shows those banks aren't so neccesary after all. New tech makes old monopolies obsolete, like cell phones vs landlines.
(Score: 5, Interesting) by Mojibake Tengu on Sunday October 13 2019, @02:38PM (1 child)
Crowdsourcing is one of the best money laundering scheme ever invented in human history. The procedure is quite simple:
1. Create a plausible Project owned by puppets.
2. Shovel own dirty money on it by small doses, some funny enthusiast street crowd people may add to the pile too, but that's not so important. Call them a bush.
3. Let the Project pay necessary wages, taxes, but spend most money on services provided to Project by own controlled legal business, a cloud is one of the best models of such services, technically better than fake invoices for legal services.
4. When no more money flow needed, let the Project fail and mop everything clean.
5. Call the scheme above a Reduce Crime and stuff, just for public distraction.
But this is just generic scheme. What's a big improvement on it are those Consumer Loans, that's integration of classic ancient debt mechanics of binding and controlling subjects.
Respect Authorities. Know your social status. Woke responsibly.
(Score: 0) by Anonymous Coward on Sunday October 13 2019, @10:03PM
Yea Madoff had the right idea, just the wrong execution...