Our sharing economy- what is it and why it can be disruptive
Ever needed an electric drill or a particular baking utensil just for a day, and it just doesn’t make sense to buy it for that one occasion? Most of us should have encountered this before. While there wasn’t a solution to this 10 years ago, the proliferation of social media has open doors to innovative solutions. And it is actually something that we are already familiar with: SHARING!
On 9 Oct, more than 50 people gathered to learn about what a sharing economy is. Organised by The Innovators Network and co-hosted by Sharing Economy Association Singapore and Padang and co., it kicked off with a sharing by Jia Jih Chai, MD of Airbnb. Subsequent speakers include Vidit Agrawal, Senior Operations Manager of Uber, Lawrence Yong, founder and CEO of MoolahSense , Fenni Wang, co-founder of Rent Tycoons (online rental marketplace enabling individuals and businesses to rent items and services from each other) and James Chua, co-founder of Pandabed (Asia’s trusted alternative to hotels by connecting you to trustworthy holiday homes).
So what exactly is the sharing economy?
1) The excess capacity of an asset
More often than not, our possessions are underutilized and that constitutes wastage. With technology, significant opportunities exist for the sharing economy.
2) Collaborative consumption
Collaborative consumption builds on a model of sharing where owners rent out something that own but are not using to people with the occasional need for the item. It could be a bicycle, a car or even simple household items like kitchenware. The exchange is usually facilitated via an online platform complete with the necessary tools and environment that creates a middle ground for commerce and community to meet.
Trust is at the core of sharing economy. In order for the exchange to happen, there must be sufficient trust present in the community.
During Q&A, a question was asked about how is it possible to trust an SME to repay the money on MoolahSense.
Lawrence shared that P2P lending platforms already have precedents elsewhere in the world, notably in the UK and US, with seven years in operation. Contrary to what some would imagine, major platforms report default rates of under 3%. This is explained by 2 main forms of control.
The first form of control is the prospect of legal sanctions. When the loans are matched, a legal contract will be drawn up between the SME and the investors. This contract is enforceable in the court of law and formalizes the exchange.
But Lawrence believes that the second form of control is probably more powerful, and that is the prospect of social sanctions. In crowd-lending, it is a one-to-many relationship, as many lenders may be funding the borrower. The social pressure and scrutiny on the borrower therefore serves as an effective deterrent against irresponsible behaviour. For bona fide businesses, the cost of a backlash and a taint on their reputation will not be taken lightly.
Charlie Ang of the Innovator’s Institute moderated the panel discussion and raised an article by DBS’ Piyush Gupta on ‘we do not need banks, but we need banking.’ (Actually, the idea was first mooted by Bill Gates in 1994.)
Commenting on whether the banking sector is facing disruption, Lawrence opined that banks have traditionally been the ‘custodians of trust’ but he believes that the cost of discovering trust can be lowered with technology. With transparency of information and processes, trust can be cultivated over multiple rounds of exchange. Quoting Jack Ma on the Alibaba IPO, what he “got from the IPO was not money but the trust of the people…with trust, everything is simple, without trust, things get complicated”. Crowdlending platforms therefore allow SMEs to reciprocate, grow trust and enlarge their base of supporters.
Also, Lawrence mentioned that crowdinvesting is not about eliminating banks. Rather, it is about plugging the funding void, extending the funding continuum for small business, and helping to mobilize capital more efficiently for typically smaller amounts, under $1 million. For larger amounts of funding (tens or hundreds of millions), banks will remain the more efficient entity to organize those.