P2P Finance minimalising transaction costs
Banks are the next institution to be challenged by peer to peer internet technology. After the artistic and intellectual property industries discovered they could cut out the middle man by using legal and illegal practices, Zopa (UK) and Prosper (US) claim to have a new model of private finance which will change the way we save and borrow in the future. Zopa has been started up by highly experienced professionals who have grown tired of the finance industries’ arrogance.
The idea of cutting out the whole business which regulates the savings and borrowing will now be replaced by an IT system, thus reducing transaction costs to (nearly) zero. The great thing about Prosper is the web 2.0 idea of introducing specific groups for people with similar needs or interests, for example the Single Parents and the vast amount of Second Chance clubs (we have all made mistakes…) to name a few. Here, lenders can choose which projects to finance as they see fit.
Both companies have raised more than $20 million from investors for future expansions, which includes the trip over the pond for Zopa to compete with Prosper in the US market. The future of banking could potentially change drastically and it will be very interesting to see how the big banks respond to this innovation. Maybebe the best way to minimalise transaction costs is if everyone traded like the guy from One Red Paperclip!
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[...] OpenBusiness.cc: P2P Finance minimalising transaction costs [...]
[...] OpenBusiness Blog (nein, nicht OpenBC): Banks are the next institution to be challenged by peer to peer internet technology. After the artistic and intellectual property industries discovered they could cut out the middle man by using legal and illegal practices, Zopa (UK) and Prosper (US) claim to have a new model of private finance which will change the way we save and borrow in the future…. The idea of cutting out the whole business which regulates the savings and borrowing will now be replaced by an IT system, thus reducing transaction costs to (nearly) zero. The great thing about Prosper is the web 2.0 idea of introducing specific groups for people with similar needs or interests, for example the Single Parents and the vast amount of Second Chance clubs (we have all made mistakes…) to name a few. Here, lenders can choose which projects to finance as they see fit. [...]
What is your opinion on the fragmentation of lenders. In the traditional situation there is one lender (or a small group of lenders when dealing with considerable sums of money), usually a bank. The repayment of the loan and interest by the debtor to the lender is therefore done with just one transaction, since there are just two parties involved. In the system used by zopa small loans are being financed by a big (in traditional terms) group of lenders. This creates the need for multiple transactions. Multiple transactions lead to higher transaction costs. In this case transaction costs are quite literally transaction costs: the costs of getting the money from the debtor to the creditor and visa versa.
Paraphrased: is the zopa system really more effective, or just cheaper for the debtor? Does the traditional system with a bank charging high interest, but with less money spent on transactions, not lead to a higher benefit to the economy as a whole?
Don’t get me wrong, I fully support the idea. I would be very interested in getting a loan at zopa or even financing one. It’s just that I’m not sure whether the system really is cheaper or that banks are just overcharging. I just seems such a waste, all those extra transactions..
[...] Though the internet has since its inception held theoretically the power to ‘disintermediate’ established firms only in the last year, or two, the p2p concept has inspired entrepreneurs to develop new financial services. [...]
[...] The OpenBusiness team has looked in detail at five financial experiments online and provides an overview and comparison. Two of those comparisons provide new ways to borrow and loan. Zopa a UK company lets individuals act in some ways like banks as they can give individuals loans. Prosper – a US company – does the same, but ‘disintermediates’ even more. In addition Kiva and Fundable both innovate non-profit finance in different ways by engaging individuals directly. Sellaband.com acts as an aggregator to finance music production. All of these services experienced strong growth in the last couple of months. OpenBusiness reported in the past repeatedly about p2p finance – see here, and here. [...]