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With the advent of eBay and PayPal, people are already taking advantage of the Internet to enter into transactions that used to require the participation of "broker" institutions.
At the same time, the banking industry continues to profit from built in inefficiencies, taking more than a week to clear
a check, charging very high credit card fees while paying out low interest, etc.
In the proposed peer-driven system, money is never actually aggregated into a single "bank", and people continue to hold their assets in the current banking system, be it PayPal or Citibank.
But when borrowing money, a member's credit info and requested amount are sent out (e.g. credit rating 900, looking for $250,000 as a 30 year mortgage loan or credit rating 600, looking for $10,000 to retire credit card debt).
Other members can review requests and approve them to participate, perhaps bid on rates, or set up automatic participation based on predefined parameters. Interest payments are then payed to their accounts.
Euroclear
http://www.euroclea...agr/106/_pa.106/113
Eurpoean finance attempting something similar for Euro-Zone securities [zen_tom, Jan 12 2005]
CLS
http://www.cls-grou...4514CEC&crumb=about
Like Euroclear, but for foreign exchange transactions [zen_tom, Jan 12 2005]
Wired article about Zopa p2p banking
http://www.wired.co...tml?tw=wn_tophead_7
[xaviergisz, Mar 29 2005]
prosper.com: US version of zopa
http://www.prosper....elcome/default.aspx
1% fee, + 0.25% for non-electronic transfers. [jutta, Mar 20 2006]
slashdot article on 'Can Peer-To-Peer Finance Work?'
http://slashdot.org...05/16/2013205.shtml
[xaviergisz, May 17 2006]
Ripple Project
http://ripple.sourceforge.net/
"Ripple is a monetary system based on trust that already exists between people in real-world social networks." Now beta testing ... [bellorie, May 23 2006]
[link]
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If you could formulate a distributed system where part-fills of finance requests can be spread across a group of people, that would be fantastic.
A fully no-broker instant financial market could deal with all manner of requests - Someone central body would have to exist to bookeep and maintain proper financial records. [+] and what's more, I can see this actually happening too. |
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Isn't this how Al Qaeda is supposed to move its money about? |
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Laundering concerns do exist here, but I think this can be set up pretty transparently to the government, certainly better documented then wiretransfers, for instance |
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Can i fish from the peer or not? I don't really understand all this stuff. |
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you can fish so long as you don't bone |
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Croissant for you! But I take it away the moment anybody makes a bundle of money of this. |
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The tricky part would be managing the confirmation of intent to form a bargain/trade/agreement and then performing on-time settlement. It is an ambitious idea - one that international banking has had some difficulty perfecting (see Euroclear and CLS for examples) but still strives towards - I'd love to see this viable as a personal option. |
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[edit] Both CLS and Euroclear are centralised - which might look like something different to the idea - but the main service they provide is the means for external parties to settle their trades with one another - they don't exist as a bank as such. It's a tenuous and subtle difference (since they both offer banking services of a kind as well) but I still think is relevant - even as an example of how the finance industry is approaching the problem. |
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Any business model can be hedged ... is that what this is about? |
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[zeno] - It seems to me that those of us with an overall positive balance would be making money out of those of us with a negative balance via a lending procedure. Just like now only without the banks getting their pound of flesh for being the middleman. Ambitious? Extremely. Good idea? Genius. |
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Isn't this basically a credit union? |
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Well I do think everyone should be able to invest in food producers vs. just spending money for it at the cash register. There is a program here to invest in organic farmers and the yield can be in food or money. |
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[RayfordSteele] -- arguably in it's basic form, as eBay is basically Sotheby's :) |
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In other words, the Internet makes certain efficiencies possible. |
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Splitting the loan among multiple bidders, at potentially variant interest rates, though, does not seem to be an existing business model that's accessible to individuals. |
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I think this is great, fine work [TC], be nice if there was a non-internet interface too, for those that actually need to borrow money (i.e. those without a hotline to the HB). |
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[neilp] deal, I'll provide a dial-in interface. |
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I work for an investment bank...I can tell you from first hand experience that this idea is a no-no... |
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[Dave] -- I spent 20 years on Wall St. I recall senior executives telling me online trading is a no-no. |
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Having said that, there is a thing called remote trading....done on line...sort of. |
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[Dave W-H] I think we're all aware it's a no-no, at least for the time being. Could you please tell us exactly why - you're probably better qualified than we are to explain the problems peer-to-peer banking would throw up. |
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[DaveW-H] Allow me to support you on that - if these transactions were truly peer to peer the damage caused to participants by acts of default (its irrelevant whether the act was intentional or not)would be severe. You'd need some kind of regulating mechanism standing in between the borrowers and lenders to spread the risk and protect the interests of both parties...some kind of financial intermediary service...like a BANK, or an INSURANCE COMPANY, or any of a thousand variations thereof. |
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Banks are beautiful. I love banks. I give silent praise every day that I live in a scoiety with a well regulated banking system that forms the foundation for a functioning economy and a functioniong democracy. |
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A world without banks would be a very, very, dysfunctional place. |
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Well, yes, I second that. |
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I don't think lenders would be so exposed. Say you had $100 floating online - you might allow $10 of it to be available for credit to others, but only in chunks of 10¢
Someone asks to borrow $100, and has their order filled by 1000 individuals all chipping in 10¢ at a time. |
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If anyone defaults, individuals have only lost their 10¢ or the portion of that initial loan that's not been paid back yet. The person defaulting would have their credit rating adjusted and they would then find it more difficult and more expensive to borrow money again. |
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Your entire $10 might be loaned out to 1000 people, so you're still able to reap interest on a fair amount, while spreading risk over such a large group that they shouldn't make too much of a problem. You would be a mini-bank, in a network of millions of other mini-banks. |
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Dave made a very funny joke |
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Sounds like napster to me... what we need is a spotty 17 year old to do it and raise two fingers to anyone who gets in the way. |
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What's to stop you borrowing 10c off 100,000 people and running away with it? |
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//What's to stop you borrowing 10c off 100,000 people and running away with it?// |
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The same thing that stops you defaulting on your credit-card bill - bad credit. |
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When you borrow $10,000 from your bank, you are in effect borrowing a small proportion of the funds held in that bank spread across all of its clients who are in credit. The bank takes the interest from you, takes its cut, and hands the remainder on to those clients in credit. It's the same system, just with a huge opaque bank in the middle taking its cut. |
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I can't believe it, xavier, thanks for the link |
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Even if this idea doesn't work in its raw form, I love the sentiment. I've worked (as a programmer) in both merchant and retail banks long enough to know that they're very conservative in their technological outlook (this largely suits them, after all), so a "this'll never fly" response is to be expected from that quarter. |
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I'm appalled that the banks have been permitted to take control of our basic exchange mechanisms and to profiteer shamelessly from this. Whatever happened to the idea that governments should be responsible for printing money, to provide a low cost, fair exchange mechanism for all? Of course, I want the advantages of electronic exchange, but not at the expense of handing control to these new robber barrons. This would best be achieved by having governments set up free or low cost accounts and electronic transacting systems, and assuming their traditional responsibilities in this area. If they won't, ideas like this will gain more prominence. |
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//A world without banks would be a very, very, dysfunctional place//
And it isn't now? |
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A world without banks would be a world of lower margins. The idea here -- which is apparently really going to be attempted by the Zopa entity mentioned in the Wired link -- is to provide liquidity directly to the people |
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Zopa looks interesting but is, as Ray points out, really an internet version of a credit union.
To really put the squeeze on the banks you need to come up with some method for people to hold their own deposits (other than cash of course) independently of the banks. Sort of like an on-line safety deposit box, I guess, with it's own sort code.
Off hand I can't think of a way to achieve this without some form of third party intervention (whether it be a Zopa-like organisation, a government or even just an ISP). |
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Interesting link, jutta, thanks. Fascinating, though, that all the rates are so high -- though the risk probably justifies it, that certainly wasn't my vision. |
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Yeah, what scared me away for now was a brief scan of the lenders' message board - how on earth am I going to decide whose stories to believe?
But I'll keep an eye on it. |
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