Internet Changes Everything

December 26, 2006

A new world: Get your mass collaboration road map set

globeandmail.com: A new world: Get your mass collaboration road map set

Traditional business is no longer the sole engine of wealth creation in the economy, DON TAPSCOTT and ANTHONY D. WILLIAMS find

DON TAPSCOTT AND ANTHONY D. WILLIAMS

Throughout most of human history, hierarchies of one form or another have served as the primary engines of wealth creation and provided a model for institutions such as the church, the military and government. So pervasive and enduring has the hierarchical mode of organization been that most people assume that there are no viable alternatives. That is, until a new generation of user-friendly collaboration tools unleashed a new force on the world.

It's like someone uncorked the bottle of human ingenuity. Empowered by the growing accessibility of information technologies, millions of people already join forces in self-organized collaborations that produce dynamic new goods and services that rival those of the world's largest and best-financed enterprises. Though it is unlikely that hierarchies will disappear in the foreseeable future, it's clear that the traditional business enterprise is no longer the sole engine of wealth creation in the economy.

The quintessential example of mass collaboration is Wikipedia -- a collaboratively created encyclopedia, owned by no one and authored by tens of thousands of enthusiasts. With five full-time employees, it is ten times bigger than Encyclopedia Britannica and roughly the same in accuracy. It runs on a wiki -- software that enables multiple users to edit the content of Web pages. Despite the risks inherent in an open encyclopedia in which everyone can add their views, and constant battles with detractors and saboteurs, Wikipedia continues to grow rapidly in scope, quality and traffic. The English-language version has more than a million entries and there are ninety-two sister sites in languages ranging from Polish and Japanese to Hebrew and Catalan.

While Wikipedia's mission is to make the sum of human knowledge accessible, not all examples of mass collaboration are guided by altruism. Take Linux, an open source operating system that emerged from the hacker-fringes of the Internet in 1991. At first, many doubted the efficacy of an operating system developed by a Web-enabled community of anarchist programmers. Oh how the critics were wrong.

Today, more than a hundred million users of set-top cable boxes, TiVos, Motorola Razrs, and other home appliances use Linux, and more than a billion people use it indirectly whenever they access Google, Yahoo, or myriad other websites. If you drive a BMW, chances are its running Linux. All considered, Linux-related hardware and services produce billions of dollars of revenue annually and now IBM, HP, Motorola, Nokia, Philips, Sony, and dozens of other companies are dedicating serious resources to its development.

What should today's business manager make of this? First, if you can make an operating system and encyclopedia through mass collaboration, consider what might come next? How about a mutual fund (http://www.marketocracy.com), a peer-to-peer lending system (http://www.zopa.com), designer t-shirts (http://www.threadless.com), or just about any physical good one can imagine (http://www.cambrianhouse.com)?

Second, don't assume that the new collective action represents only a threat to established businesses. While some fear mass collaboration will reduce the proportion of our economy that is available for profitable activity, smart firms are proving otherwise. Networked models of innovation and value creation can bring the prepared manager rich new possibilities to unlock innovative potential in a wide range of resources that thrive inside and outside the firm. For example, IBM estimates that working with the open source community saves it nearly a billion dollars per year over what it would cost to develop a Linux-like operating system on its own.

Finally, get your mass collaboration road map ready. Barriers to entry are vanishing and the trade-offs that individuals make when deciding to contribute voluntarily to projects and organizations are changing, creating opportunities to dramatically reconfigure the way we produce and exchange information, knowledge, and culture. Companies that recognize, address, and learn to tap mass collaboration will benefit, while those that ignore and resist will miss important opportunities for innovation and cost reduction, and may even go out of business. Now that the genie's been unleashed, there's no putting it back in the bottle.

Don Tapscott is CEO of New Paradigm, a technology and business think tank, and the author of 10 books about information technology in business and society, including Paradigm Shift, Growing Up Digita.

Anthony D. Williams is an author and researcher with experience in the impact of new technologies on social and economic life.He is vice- president and executive editor at New Paradigm.

Wikinomics

Forget everything you know about the way we do business. Mass collaboration is revolutionizing the corporation, the economy, and nearly every aspect of management. In this seven-part series, Don Tapscott and Anthony D. Williams, co-authors of Wikinomics: How Mass Collaboration Changes Everything, due out Jan. 2, explain new business models that will empower the prepared firm and destroy those that fail to adjust.

December 26, 2006 at 10:07 PM in Financial Services | Permalink | Top of page | Blog Home

Social lending over internet cutting out the banks

Social lending over internet cutting out the banks | 24dash.com - Bill Payments

New study shows that Brits are looking for an alternative to high interest rates – Social Lending over the internet

Big banks watch your backs - the British public is looking for an alternative, with 74 per cent of Britons stating they would consider either getting a loan or lending money through a social lending community, rather than their high street bank, according to a new study.

While the study found that people who used high street banks thought they were necessary for general everyday banking, 49 per cent stated that they feel that banks do not have their customers' best interests at heart, 81 per cent agreed that the banks are self interested and 76 per cent strongly agreed that the banks are greedy.

'Internet-based Social Lending', an in-depth study by the Social Futures Observatory, looked at the growing phenomenon of Social Lending.

Borrowing and lending money person-to-person, rather than through a bank is an age-old concept, but in the past has normally taken place in private – through friends, family or other close-knit social groups. Social Lending, now facilitated by the Internet, is emerging as a new financial category of genuine importance. Social Lending is when people lend and borrow money, side-stepping the banks in order to get better loan rates and better returns than their savings account, and a fairer deal for everyone.

The study found that Social Lending is growing in popularity, much like other social networking sites that have seen huge growth with the likes of LinkedIn, YouTube and MySpace.

The reasons for this are due to the increased transparency and connectedness with others that comes from lending to and agreeing loans amongst like-minded people. Just as importantly, it offers people strong financial benefits – higher rates of return on investment for lenders, and a lower rate of interest than is offered by banks for borrowers.

The study looked at a number of Social Lending players, and used Zopa, the online marketplace where people meet to lend and borrow money, as a case study. Zopa, which was set up by many of the team that launched Egg, currently has 105,000 members in the UK.

According to Professor Michael Hulme, who authored the study, "Traditional Banking emerges from this report as almost some form of necessary evil. For most people banking does not provide any form of rewarding or valued experience it is simply a necessity. In contrast to this the Community Sites we looked at appeared to offer a much deeper appreciation of the individual that went far beyond the actual transaction."

James Alexander, co-founder and CEO of Zopa, believes that not only are people looking for a better financial deal, but also for a way to make their money human again.

"We've seen a strong return to ethical values in recent times, with many of us concerned about the impact we, and the organisations we deal with, are making on the community we live in. Lending and borrowing money from real people online, through marketplaces such as Zopa, allows people to get a much better financial deal than what's on offer on the high-street.

"People are already seeing the benefits – for example, those lending at Zopa have since launch received about a 50% better rate of return on money they've lent out than if they'd left their money in the best savings accounts such as ING Direct or Egg."

According to the survey, 64 per cent of people who use high street banks felt it was important that their banks provide a service that enables social interaction and community participation, yet only 13 per cent felt their bank significantly enabled either of these things.

Additionally, 56 per cent said that the more social and interactive features of Social Lending would be a significant factor in their decision to use a Social Lending scheme and 18 per cent stated that investing in people rather than institutions would motivate them to use Social Lending marketplaces such as Zopa.

December 26, 2006 at 09:57 PM in Financial Services | Permalink | Top of page | Blog Home

December 14, 2006

Britain provides a glimpse of the future of advertising

Internet advertising | Adland's test tube | Economist.com

Dec 13th 2006
From The Economist print edition
Britain provides a glimpse of the future of advertising

THE future, noted William Gibson, a science-fiction writer, is already here—it is just unevenly distributed. To see the future of mobile phones, people look to Japan; to see the impact of broadband internet connections, they look to South Korea. And for a glimpse of the future of advertising, the place to look appears to be Britain. The country is a “test bed” according to Eric Schmidt, chief executive of Google, which has just announced an alliance with British Sky Broadcasting (BSkyB), a British pay-television company. On December 6th the two companies announced that the internet search and advertising giant would provide its search, e-mail, video and advertising services to BSkyB's broadband internet-service customers, with the aim of extending the partnership to BSkyB's main television business.

Why Britain? The country has several factors in its favour. For a start, the British online-advertising market is “exploding”, said Mr Schmidt. The internet accounts for 14% of companies' total spending on advertising in Britain, compared with about 5% worldwide (see chart). Expenditure on internet advertising in America is similar to that in Britain, but Britain's growth rates are slightly higher. In the first half of this year online advertising increased by 40% in Britain and 37% in America compared with the same period last year, according to the Internet Advertising Bureau, an industry body. Britain is now the leading market for online advertising, says Rob Noss, European chief executive of MindShare Interaction, a new-media subsidiary of WPP, a British advertising giant.

That is due, in part, to the presence of the BBC, Britain's state-controlled main broadcaster, which has no advertising. As a result, British companies spend less on television advertising than those in countries with big commercial broadcasters, and more on other types—which, in recent years, has meant online advertising. GroupM, the media-buying division of WPP, forecasts a 2.4% decline in British television advertising in 2006 and a flat market for 2007.

Eventually, says Sir Martin Sorrell, chief executive of WPP, the internet will grow to account for 20% of worldwide advertising spending, at the expense of traditional media (broadcast and cable TV, print, radio and outdoor advertising). But Britain will reach this point by 2009, predicts ZenithOptimedia, a market-research firm, at which point internet advertising will be worth almost as much as television advertising. Britain has, in effect, got a head start over other countries as advertising spending shifts from old to new media.

Another catalyst of the growth of online advertising is Britons' enthusiasm for fast, always-on broadband connections to the internet and for online shopping. In Britain 47% of households have broadband, compared with 44% in America and 33% in Germany. Consumers with broadband tend to shop online more frequently and spend more money than those with slower dial-up internet connections. In the first six months of this year online retail-spending in Britain increased by 40% compared with the same period last year. The attraction of online ads is obvious.

Advertisers are waking up to the fact that British consumers typically spend a quarter of their media-consumption time on the internet, says Linus Gregoriadis, an analyst at E-consultancy.com, an internet-research firm. Britons spend an average of 23 hours a week online, compared with 14 hours per week for Americans. Advertisers also like the efficiency of the medium: much of the advertising on the net is “pay-per-click”, which means that advertisers pay only when consumers click on an ad, so they can be relatively confident that their advertisements are reaching a receptive audience. Mr Noss says that several of his firm's clients already spend 40% of their advertising budgets online.

Blue-chip companies have yet to take the plunge and still spend only a tiny fraction of their budgets on internet advertising, but that could be about to change. Unilever, an Anglo-Dutch consumer-goods giant, Heineken, Europe's largest brewer, and Procter & Gamble, a large consumer-goods company and the biggest advertiser worldwide, recently announced that they will switch a big chunk of their British advertising budgets away from television. Much of it will go online.

Britain is also attractive to advertisers because it is a homogeneous market, so there is no need to tailor advertisements for different parts of the country. The adoption of digital television is proceeding well, and BSkyB's platform is particularly advanced; Google and BSkyB plan to send advertisements to viewers' set-top boxes and then play them in commercial breaks depending on their interests, thus extending its targeted advertising model from the internet into television.

And British consumers' relative enthusiasm for accessing the internet from mobile phones—if not in the same league as that of Asian consumers—explains why Yahoo!, another big internet firm, struck a deal last month with Vodafone, a big mobile operator based in Britain, to test new models for phone-based advertising. In addition, next year a new mobile-phone service for young people, called Blyk, will be launched in Britain before being rolled out across Europe. Users will be able to earn airtime in exchange for receiving advertisements on their handsets.

Blyk's co-founder, Pekka Ala-Pietila, a former president of Nokia, the world's biggest handset-maker, says the firm decided to launch in Britain first because it is the second-largest advertising market in the world after America, with sophisticated advertisers who appreciate the market segmentation that new technology makes possible. As a result, he says, Britain “is where we could learn the most”. It all makes a welcome change for Britons used to hearing that their once-great country no longer leads the world in anything.

December 14, 2006 at 06:29 PM in Online Marketing | Permalink | Top of page | Blog Home

December 13, 2006

Netfinance 2007

December 13, 2006 at 12:07 AM in | Permalink | Top of page | Blog Home

December 08, 2006

Prosper.com rounds up a community of dollars and sense

CSIndy: The loan rangers (December 7, 2006)

Prosper.com rounds up a community of dollars and sense
by Josh Johnson

Like many Americans, I’m in debt. Serious debt. I owe more money than I make in a year.

With the federal government operating at $8.6 trillion in debt, and with American consumers owing nearly $2 trillion — more than the gross national product of many industrialized nations — to credit card companies and other creditors, some might say that debt is the American way.

My debt is so scary that I’ve largely ignored it, unable to deal. I’ve contended with multiple daily messages about “an important business matter,” but otherwise, not facing it has been a fairly easy way of managing it. I can’t get a mortgage with an interest rate short of robbery, and even credit card companies have shunned me, so I get by paycheck-to-paycheck, trying not to increase my debt.

“Ignore it and it’ll go away,” however, is not a long-term operating principle. I was unemployed for much of 2006 and discovered that many employers now run credit checks on potential employees, as do landlords. My credit report can affect my housing and employment, and I had no idea what the report even said. It frustrated me that my secret past of fiscal irresponsibility was used to judge me, ultimately keeping me back.

So I set out to face the monster. I went to TrueCredit.com and bought my credit reports for $29. Beer in hand, I saw myself as the credit world sees me.

As a student, I took out the largest loan allowed each semester, for tuition and living expenses, sure, but also for stereos and other items not directly related to my education. My student loan account is now horribly delinquent, weeks away from defaulting. The credit cards are already in default. Library fines and parking tickets have been sold to collectors. I also have bounced checks from now-closed accounts and am years removed from a host of other small financial missteps.

After figuring out which accounts need to be paid now and making deals with others, I arrived at the amount needed to bring me current and on the road to better credit: $1,700. Not bad! Problem is, I’ve dug a hole so deep no one will risk helping me out, and I have no savings to halt that number from doubling. No credit card will give me a $1,700 line of credit, and when I applied for a loan through my local bank, I was told, “It’ll be difficult for you to do anything.”

I could go to predatory lenders, like a payday-loan agency or high-risk lenders disguised as credit counselors, but with payday loans in Colorado at an average 345 annual percentage rate (APR), I could dig myself deeper. Simply put, I have no access to credit. All reasonable creditors see me as a number. They don’t look beyond and see the human desperately trying to make good and right the wrongs.

Enter Prosper.com.

‘Libertarian paternalism’

Some years back, Chris Larsen had a “sleazy” mortgage experience that left him feeling ripped off, with the impression that the credit system in America is corrupt and generally “mucked up.” He set out to change things by starting eLoan, an online mortgage, home equity and car-loan lender. eLoan was a success, doing more than $27 billion in business over the Internet. But Larsen dreamt of further democratizing lending.

“We started thinking with the eLoan experience, ‘Well, what would be the ultimate model here?’ and kept coming back to an eBay for money,” he says. “eBay has been so great at democratizing. They’re bringing capitalism to the masses.”

Last year, Larsen sold eLoan for $300 million, and he launched Prosper.com in February. Today, Prosper has more than 100,000 members with $23 million in loans.

Prosper’s framework combines the peer-to-peer marketplace of eBay with the social networking of MySpace. Borrowers seeking between $1,000 and $25,000 post profiles explaining their need for a loan, and lenders bid on the most attractive loans the same way eBay users bid for products — except the lowest interest rates, not the highest offers, win.

Most loans are funded by dozens of lenders who bid $50 each, the minimum allowed. Prosper keeps a 1 percent loan-originating fee (a one-time $25 charge for a $1,000 loan), and bills the lender a 0.5 percent annual loan-servicing charge. Borrowers have three years to pay off the debt, with no penalty for pre-payment. Basically, Prosper is a peer-to-peer lending auction with a human element.

One of Larsen’s missions at eLoan was to be “radically pro-consumer,” and he’s brought that ideal to Prosper. In most lending situations, the borrower approaches the lender, putting the lender in a position of power. Prosper turns that model on its head. Here, the lenders seek out the borrowers, who set the details of their loan, including a cap on the interest rate they’re willing or able to pay.

Larsen calls this “libertarian paternalism.” Anyone who can clear an identity check can post a listing. And any American with $50 can bid on that listing. Lenders can assess their risk using methods such as credit ratings based on a borrower’s actual credit score. And the borrower’s debt-to-income ratio — marked with a red warning label if the ratio is high — cautions lenders against those who may not be able to afford the loan. From that point, the market is open to do what it will. Prosper is merely the tool, the venue.

As a result, the diversity of borrowers on Prosper is impressive. There are the entrepreneurs seeking start-up capital; those seeking car loans at lower interest rates and more manageable payment schedules than offered by dealers; and the people with terrible credit history trying to get a fresh start.

A quick survey of the site reveals some compelling stories. One single mother, an Iraq war veteran, is trying to consolidate her debt in order to get back on her feet. She’s posted pictures with her children and lays out her monthly budget for all to see.

A professional woman recently diagnosed with cancer needs $25,000 to front her chemo treatment until the health-insurance paperwork is processed.

$ocial networks

Many of the borrowers are people who, for numerous reasons, are not able to get credit elsewhere, and many of these people find loans on Prosper. Tales of funding someone with such dire needs can warm the heart, but Larsen is quick to clarify that Prosper is not an altruistic endeavor.

“We’re a for-profit company,” he says. “If we’re ever really going to take on this trillion-dollar credit market, just for unsecured credit alone, there really needs to be a model that can sustain itself, not just through charitable contributions, but through good returns on investment.

“We believe, much like the eBay sort of mission, that most people are good, and if people are given open access to trade, good things will come. You could probably track all the evils of predatory lenders, payday lenders, all the bad stuff that happens in credit, back to lack of transparency, lack of access.”

Some have compared Larsen to Ralph Nader for his consumer-rights fervor. In California, where Prosper is based, Larsen put up $1 million for petitioning and acted as a mediator between legislators and financial institutions to pass a law that prevents the buying and selling of financial information without notifying the consumer, a practice Larsen says contributes to the proliferation of identity theft. He’s also worked to create greater consumer access to credit information, which was highly guarded by the industry until 2001.

“Consumers need to be on an equal playing field with lenders who have that information,” Larsen says. He uses the example of an auto dealer to illustrate his point.

“Just when you’re at your lowest low, he gives you a rate that’s probably five or six points higher than what you really should be getting. Then he’s turning around and selling it to Wall Street at the real price, and he’s making a killing. That can only happen when there’s lack of access. Can anybody else see that transaction in America? Does anybody else see what it actually sold for on the capital markets?”

As much as they run the risk of getting screwed by traditional loans, solo borrowers on Prosper, especially those viewed as higher-risk by lenders, have a harder time getting a loan. For them, there are Prosper groups. Apple User Group, Independent Filmmakers, Funding Your Wedding, Corporate Divas, Minorities in Need of Money, Christian Opportunities — there’s a group to suit every user.

Groups primarily act as social networks. Users apply to a group, and the group leader accepts or denies the application. Some group leaders require a meeting or phone call, a bank statement or full financial vetting. The best groups are the most difficult to join.

Good group leaders act as mentors, reviewing member listings before they’re posted and offering advice. Lenders will reference a group’s rating and its members’ repayment histories when considering a loan. Groups essentially vouch for their members, and a member’s poor repayment history affects the whole group. Prosper kicks back some cash to group leaders whose members pay on time, and the leader can choose to share it with the group or keep it as compensation. Many members make money as they repay their loans.

More importantly, groups introduce what Larsen calls the “shame factor.” Group members feel compelled to repay their loans to avoid the shame of letting their group down.

“How will you be looked at in your community if you do not repay your debt?” asks Larsen. “That’s something that America’s sort of lost.”

The hui way

Prosper, upon first glance, may seem like a new idea, but it’s not. Larsen references the classic holiday film It’s a Wonderful Life.

Back then, with small community banks, borrowed money was actually a neighbor’s money. Prosper simply cuts out the middleman. While the neighbor may be earning 3 percent interest on his $5,000 savings deposit, the borrower is paying 19 percent interest on her line of credit from the same bank, for the same amount. Meet in the middle at 11 percent on Prosper, and she pays eight points less while he makes eight points more — a win-win.

Inspired by eBay, Prosper.com founder Chris Larsen is relying on the goodness of everyday people to transform the loan industry.
Photo courtesy of Chris Larsen
If a lender were truly a neighbor, the borrower would feel more inclined to pay on time, to save embarrassing encounters at the curb while putting out the garbage. This “shame factor” is lost when dealing with a large, faceless institution. With Prosper groups, borrowers are accountable to real people. But this is not an innovative concept.

“Prosper was partially built on a Vietnamese system called hui,” Larsen says. “It’s a system of peer-to-peer lending, where a small village will get together; 12 people participate, six will be lenders and six will be borrowers. And it works very strongly on that sense of accountability for the community.”

What’s missing here is a lender’s ability to diversify. Rather than lending $5,000 to an individual at 20 percent, lend $50 to 100 people with the same interest rate. Should one of them default, the rest will cover the loss. In many cultures, community members lend and borrow among themselves. Rotating savings and credit associations (ROSCAs) are an example, and Prosper is a kind of American version.

What Larsen calls the “shame factor,” Muhammad Yunus calls “solidarity.” Yunus pioneered microcredit, a system of giving small loans to those who otherwise would not have access to credit. He, along with his Grameen Bank, won the Nobel Peace Prize this year for fighting poverty using the method. Yunus believes credit is a basic human right.

The United Nations declared 2005 the International Year of Microcredit. Microcredit generally works with philanthropists making guarantees, dollar amounts not donated but placed as collateral should loans default. The guarantee remains in an investment account while microfinance institutions (MFIs) use it to back small loans to the world’s poor and extreme poor, who have no access to credit or banking of any sort.

Conventional wisdom would say loaning money to the poor and extreme poor is not good for lender or borrower, but Yunus has proven differently. A small loan of less than $500 is often all that’s needed to lift the poor out of poverty. Of those who’ve remained in Yunus’ program for more than five years, more than 50 percent have pulled themselves out of poverty, he says.

Yunus’ work also shows that the poor tend to make natural entrepreneurs. Their fight for survival has taught them efficiency, frugality and creativity in getting the most out of their money. With a small loan, a person can buy a goat to breed and sell the offspring, or start another business. And, perhaps most surprisingly, the available numbers show that the poor are fiscally responsible.

“Well-run MFIs typically have a default rate of less than 2 percent,” says Kyle Sayler, senior vice president of portfolio management for MicroCredit Enterprises. And while industry-wide numbers are not available, he suspects the average repayment rate is somewhere around 96 percent. “Repayment rates are better than in traditional banking in the U.S.”

MicroCredit Enterprises is a relatively new organization whose employees work mostly pro bono to raise money for MFIs within communities. Like many MFIs, MicroCredit prefers to work with women. And 96 percent of Grameen Bank’s loans are awarded to groups of women.

“Some would say women tend to repay better. I don’t know if that’s the case or not,” Sayler says. “In our case, when women increase the income in their families, they’ll take a greater share and put it toward food or clothes or education for their children.”

Sayler spent two years running an MFI in Chiapas, Mexico, and says one factor that contributes to high repayment rates on microcredit loans is the willingness of group members to cover a payment for another member when she cannot.

“It worked because they came from the same community, and they self-selected their group,” he says. “We didn’t force anyone to work with anyone they didn’t want to.”

As MFIs prove that the world’s extreme poor are responsible borrowers, the giant, for-profit banks are eyeing a slice of the pie.

“I think there’s a big divide in the industry right now between fear of commercialization and pushing commercialization,” Sayler says. “There’s a little bit that makes me fear making money on the backs of the poor. But at the same time, I think [commercialization] causes MFIs to operate more efficiently. Increase in competition and efficiency pushes down interest rates to the poor.”

After all, those receiving microcredit through MFIs or Prosper all have the same goal: profit.

Live long and ...

Andy Mowery is a Fort Collins entrepreneur and leader of the Prosper group An Entrepreneur For Sure!

“We look for serious entrepreneurs,” he says of the group. “If they don’t have a written business plan, they have a concrete idea of what they want to do with the loan.”

Mowery began selling home, garden and pet supplies on eBay in 1999. Today, his company, Debnroo, has grown into a 2,500-square-foot warehouse in Fort Collins, and he expects to do about $1.1 million in retail sales this year. Revenue doesn’t always mean ready capital, however, and so when he needs cash in hand, he turns to Prosper.

“We most recently took out a $25,000 Prosper loan to buy a container of a product that we’ve been selling for over four years, and it was a single opportunity to get the item at a deep discount.”

A single opportunity, Mowery says, that needed to happen in 72 hours. He found an investor to float him the capital for two weeks while he waited for a Prosper loan.

“Fourteen days is not a lot of time. I’d challenge anybody to try and do that with a bank,” he says. “I think the process through traditional banks is antiquated.”

Mowery got the loan through Prosper, and he now uses his know-how to mentor others in getting loans.

James Carothers had maxed his credit and needed to clean it up before applying for a Small Business Association loan to purchase the Moose Creek Café in Walden. He joined the group Business Loans for Entrepreneurs!, and with no mentoring, Carothers received a $5,000 loan from 26 lenders, most of whom put up the $50 minimum.

Carothers had a middle-of-the-road credit rating at the time he got his loan, with a debt-to-income ratio of 17 percent — not low. His group’s track record and his personal listing — which noted a financially crippling car accident 13 years prior, his Christian faith and his post on the town council — brought skeptical lenders to his side.

“I had it funded in less than four hours,” he says. “I hope to leverage myself in the next six months into a position where, rather than a borrower, I’ll become a lender to help other people out.”

While Prosper lenders certainly look for attractive returns, those who post listings that appeal to emotions and present a human face get funded. Apparently, lenders like to think they are helping out.

“You’ve got to be able to communicate to people that there’s a human being behind the screen name and tie in emotional aspects,” Mowery says. “Emotion works. That’s part of what marketing and salesmanship is all about.”

Whose de-fault?

My first loan application on Prosper, for $1,000, was a terrible failure. My credit rating lists me as high-risk, though my debt-to-income ratio is the lowest possible at 1 percent. Colorado caps interest rates at 21 percent, and most lenders don’t see that as a high enough risk-to-return ratio.

Immediately after I posted my listing, I received multiple messages from well-intentioned users offering suggestions. I was told to detail my four current defaults, vet my personal finances and, please God, join a group already.

So I joined the first group I found, one with 910 members who I knew would accept my poor-credit self. Its obnoxious name — “More loans FUNDED @ LOWER % than ANY other group” — gave me hope.

So I posted for another loan, now backed by what I thought was a successful group.

I got messages from the same people who replied after I posted my first loan. I was scolded: “Have you learned nothing since your last listing?” Apparently, lenders shun my group. They say the group leader can’t hold 910 people accountable and offers no mentoring. And I never heard from the group leader.

I soon withdrew my second loan application.

Fort Collins’ Andy Mowery, a Prosper.com borrower, is looking to give back — literally — as a lender.
© 2006 Laura Katers
In order for Prosper to work for me, I must do more homework. I need to scour the message boards for comments about groups and join one that’s right for me. I need to post a transparent profile that explains in detail why I’m in this situation and how I plan to budget payments. I need to build lender confidence.

But in the back of my mind, I wonder, “If I get this loan, will I make payments on time, or will I fall back into old habits?” Prosper gives credit to those who can’t get it elsewhere, but if I fail to uphold my end of the deal, I’ll be sent to collection agencies. Yet if I make payments regularly, it’s positively reflected on my credit report.

“Sometimes credit is something that completely turns around somebody’s life; they could start a business,” says Larsen. “And sometimes credit for a person at the wrong time in their life can actually be detrimental.” I’m looking to the world’s poor for an example.

Josh Johnson is a former contributor to the Colorado Springs Independent and current associate publisher at the Rocky Mountain Chronicle, where this story originally appeared.

December 8, 2006 at 10:52 PM in Financial Services | Permalink | Top of page | Blog Home

UK Net Boffins Targeted

Sky News: Net Crime Gangs Using 'KGB Tactics'

Updated: 08:56, Friday December 08, 2006

Internet crime gangs are using "KGB-style" recruitment tactics to snare talented computer students from British universities.

Security technology company McAfee also said children as young as 14 are being drawn into cybercrime by the promise of "celebrity status" among their peers.

The company's second annual report on internet organised crime included input from the FBI and European hi-tech crime units.

It suggested gangs were approaching top students and graduates from leading academic institutions to provide vital IT skills.

These tactics echo those of Russia's KGB and other countries' intelligence agencies during the Cold War.

"Cybercriminals are actively approaching students and graduates of IT technology courses to recruit a fresh wealth of cyber skill to their ranks," said the report.

It indicated cybercrime had won a "cult" following among hackers, with some online offenders reaching almost celebrity status.

McAfee security analyst Greg Day said: "Cybercrime is no longer in its infancy, it is big business."

December 8, 2006 at 10:45 PM in Online crime | Permalink | Top of page | Blog Home