P2P Money Blog

Welcome to a new series of blog posts taking a look at the wider trends of collaborative consumption that are helping to fuel the peer to peer finance movement.  These posts are written by Hazel McHugh from Funding Knight, a new peer to business lender who arrange crowdlending for businesses.

The rise of collaborative consumption

Collaborative consumption and the sharing economy - these relatively new terms are fast becoming hot topics as more and more peer to peer businesses spring up, launching peer exchange models into sectors as diverse as carsharing (carpooling.com) to peer to peer finance to finding a place to crash for the night (Airbnb or couchsurfing.com).

Whilst sharing might have begun within the sustainability movement and appeal to people wanting to live a greener, more ethical life, collaborative consumption is now far bigger than that, and certainly not restricted to those who shun the more capitalist objectives of making their money work harder.

Peer models are suddenly big business  - prompting the mayor of San Francisco to form a sharing economy working group earlier this year to capitalize on the potential to generate jobs and income.

Collaborative consumption is now not only about people acting ethically but about people finding new, more efficient ways of doing things that capitalize on the networking potential of the internet.  It has ramifications for virtually every aspect of our daily lives, to the extent that TIME magazine even described it as one of the top ten ideas that will change the world.

Collaborative finance

Peer to peer finance, peer to business lending, crowdlending or crowdfunding - these are all variations on a theme.

All offer an alternative to mainstream banking, presenting a more direct, often more efficient, and yes, riskier, way of lending and borrowing money.

By cutting out the middleman and interacting directly - via a peer to peer lending platform - both lenders and borrowers can create value for themselves.  Lenders can make their money work harder and - hopefully - extract rates of return that are superior to that on offer on the high street (albeit whilst accepting a higher risk that their capital could be eroded by defaults).  Borrowers, meanwhile, can tap into a new funding stream that offers a more flexible way to finance a business or personal expenditure.

Right now, most peer to peer lending companies remain fairly new.  With the exception of Zopa, Funding Circle and Ratesetter, and arguably Thin Cats on the P2B Lending side, most - like FundingKnight - are new entrants with the arrival of new P2P lenders quickly gathering pace.

Far from a niche segment that appeals to risk hungry investors or those looking for a bit more ‘fun in their finance’, I think that collaborative finance is here to stay.

I think the step changes that have happened elsewhere in industry as the internet has gradually tweaked, then radically altered, business models are yet to really make their mark on financial services.

Yes, banks and financial institutions have half-heartedly embraced online banking and to a much lesser extent mobile payments but what about the type of fundamental shifts we’ve seen in other sectors - shifts that are replacing Blockbuster with Netflix for example or which helped digital downloads take over from ‘real’ album purchases.  What about the revolution in the way we take, store and share photographs that made Facebook pay $1 billion for Instagram whilst Kodak filed for bankruptcy in a bid to survive a liquidity crisis.

Collaborative finance doesn’t have to mean people forgoing financial returns to invest in ethical businesses, it doesn’t have to mean people wanting to find greener, more sustainable ways to transact their business and it doesn’t have to be about communities and local lending…  Yes, it can be about all of those things but it can also be about good old financial acumen, about individuals wanting to make money and improve financial returns.

For me, it’s exactly the degree to which these different perspectives collide that will give peer to peer finance its longevity.  One peer to peer lending platform can simultaneously let different people achieve different objectives - and deliver new efficiencies for all.  To use a well coined phrase, it’s ‘purpose with profits’.

So, what are the markers which place collaborative finance outside of mainstream finance?

According to Rachel Botsman, one of the best known proponents of collaborative consumption, there are four essential principles:

1. Critical mass
2. Idling capacity
3. Belief in the commons
4. Trust between strangers

Then come the ‘softer’ values of a new mindset that places a greater value on:

• Simplicity
• Traceability and transparency
• Participation

Over the coming weeks and months, I want to explore the role of all these factors in peer to peer lending and collaborative finance, and, just to be different, we’ll at begin at the end with participation.

Next time, we’ll be taking a look at why some of us like to be more involved than ever before in our financial decision making.

I hope you enjoy this series of blogs and please do leave comments, opinions and suggestions - after all, collaboration is the golden word!

Hazel McHugh works for FundingKnight, a new peer to business lender who arrange crowdlending for businesses.  It is free to register for peer to business lending at www.fundingknight.com and you can start lending with just £25, fee free for lenders.  More posts from Hazel can be found at blog.fundingknight.com.

...