On the plus side, the Internet has already dealt a mortal blow to one value-destroying participant: human brokers. (Anyone remember the bad old days where you had to talk to an actual human being to place a stock trade, and would be charged hundreds of dollars for doing so? And they would call you up and give you bad advice to maximize their churn in your account and, hence, their commissions?)
I loved Prosper (crowdsourced P2P loans), which was mentioned. However, the primary barrier to Prosper's success has not been regulation (a somewhat surprising statement, considering they were shut down for securities laws violations for the better part of a year). The primary barrier to Prosper's success is that their product is strictly inferior to credit cards for anyone who can get a credit card, which means you have an adverse selection problem for borrowers -- the only people who apply have either maxxed their cards or would never be given one in the first place. As a result lender returns are terrible -- many lose principal, and a huge majority underperform substantially risk-free investments like T-bills or CDs.
I'd love to see an innovative option for consumer or small business loans, but it has to compete with this deal: up to $15k delivered instantly (or in 2~4 days), 4% transaction fee, 1% interest for 12 months followed by ~15% interest for life. That what Bank of America will offer me -- right now, instantly, no-human-involved-whatsoever -- for a cash advance on my credit card. Could that deal be improved upon? Yes. But the fact that that deal is possible is, and I say this with no hint of exaggeration, a triumphant monument to the success of capitalism. Many of us Prosper lenders thought it would be easy to beat that with a little human touch. We were dead wrong.
Prosper's original model was, basically, I put on a two week dog-and-pony show on their loan auction page, attempting to convince fickle lenders that I am a good credit risk. In return, I get $X,000 less a 1.5% or so fee (can't remember -- it is higher now) deposited in my bank account about four weeks after the day I start the process, at whatever the auction came up with for an interest rate. In my case, it was 12%ish.
I got a Prosper loan, and all participants in it (Prosper, lenders, myself) benefited from it, but that was for the quirky edge case. The average case was murderous to lender returns.
I loved Prosper (crowdsourced P2P loans), which was mentioned. However, the primary barrier to Prosper's success has not been regulation (a somewhat surprising statement, considering they were shut down for securities laws violations for the better part of a year). The primary barrier to Prosper's success is that their product is strictly inferior to credit cards for anyone who can get a credit card, which means you have an adverse selection problem for borrowers -- the only people who apply have either maxxed their cards or would never be given one in the first place. As a result lender returns are terrible -- many lose principal, and a huge majority underperform substantially risk-free investments like T-bills or CDs.
I'd love to see an innovative option for consumer or small business loans, but it has to compete with this deal: up to $15k delivered instantly (or in 2~4 days), 4% transaction fee, 1% interest for 12 months followed by ~15% interest for life. That what Bank of America will offer me -- right now, instantly, no-human-involved-whatsoever -- for a cash advance on my credit card. Could that deal be improved upon? Yes. But the fact that that deal is possible is, and I say this with no hint of exaggeration, a triumphant monument to the success of capitalism. Many of us Prosper lenders thought it would be easy to beat that with a little human touch. We were dead wrong.
Prosper's original model was, basically, I put on a two week dog-and-pony show on their loan auction page, attempting to convince fickle lenders that I am a good credit risk. In return, I get $X,000 less a 1.5% or so fee (can't remember -- it is higher now) deposited in my bank account about four weeks after the day I start the process, at whatever the auction came up with for an interest rate. In my case, it was 12%ish.
I got a Prosper loan, and all participants in it (Prosper, lenders, myself) benefited from it, but that was for the quirky edge case. The average case was murderous to lender returns.