It’s Time for Collaborative Finance (P2P Lending)
A recent Economist article reported “the rise of the sharing economy“. The article drew inspiration from the book “What’s Mine is Yours”, where Rachel Botsman popularized the term collaborative consumption, reporting a deep shift in consumer attitudes around 3 core values: Simplicity, Transparency and Participation.
This is certainly true in the area of Finance. After the global financial crisis, investor preference has gravitated towards plain vanilla – no more complicated products with fancy bells and whistles. There is also greater demand for transparency. Investors are becoming more discerning about what they buy.
P2P lending is a form of collaborative lifestyle, where people with similar interests are coming together to exchange less tangible assets (moolah). According to Fred Turner, author of From Counterculture to Cyberculture, each individual could act in his or her own self-interest and at the same time produce a unified social sphere. To stretch the idea, in the classic The Three Muskeeters, “all for one and one for all” comes to mind.
All of these require a high degree of trust. But peer sharing is not just a nice idea, it has proven to be workable. A few successful examples are Airbnb and Zipcar. In Singapore’s context, the establishment has also realized the potential of collaboration. Car sharing has been promoted by the LTA as a way to access private car without owning one. And more recently, Minister Lui had shared that the LTA will be studying if Private Car Rental Scheme can be further liberalised to legitimise peer to peer car sharing. The Collaborative Industry Projects scheme mooted by MTI further endorses the efficacy of businesses with a shared purpose coming together to achieve common objectives.
P2P lending is Collaborative Finance. Borrowers get access to potentially better loan rates and investors potentially better returns compared to traditional finance. This is also not just a novel idea. It works and has mushroomed in many countries, with LendingClub and Prosper in the U.S. ; and Zopa and FundingCircle in the U.K. among the more established. As a proven concept and with a high trust society, it’s high time borrowers and lenders start getting a fair deal themselves!