A few days ago, a colleague sent out a news article by email to a bunch of us. My boss responded with:
Not resorting to hyperbole - but this is the most brilliant idea I've read in a long time.
I am being a little aggressive here, but this is the biggest threat that banks will ever see to their model.
It will take 10 years, but this IS the bank of the future.
This may well be to the consumer lending business what the ATM was to retail banking.
What was he so excited about? Something definitely worth getting excited about:
Prosper's users lend money to and borrow money from other people on the site at what the company says are better interest rates than those available through traditional financial institutions and without some of the risk that comes from typical person-to-person loans.
"We looked at eBay and said, 'Why can't we do this for money?' " said Chris Larsen, Prosper's chief executive.
He noted that consumers make, at most, about 4 percent on their savings accounts, which banks then lend to credit card customers at 14 percent or more.
"That's just a huge spread," Mr. Larsen said. "We think if you allow people to participate directly, it's a more efficient marketplace. People can make a better return on their deposits, which then become the source of credit to others."
Borrowers can also join or create groups with defined interests or characteristics that, they hope, will make them more attractive to some lenders. Prosper's group leaders receive a commission on the group's lending and borrowing activities, which they sometimes share among the group. "If the sites are able to recruit strong group leaders with strong affiliations, they shift the marketing burden to those people, who have the incentive to go after others to become part of the group."
The community aspect of the site, Mr. Larsen said, is an important component. "It's satisfying to place money in little bits with people who have stories, and in groups that you know and trust and want to support."
I think this will turn out to be as big a phenomenon, or perhaps even bigger when all its implications are considered, as mortgage-backed securities were in the '80s.
I went to Prosper's website and Larsen's point about the community aspect certainly rings true. The human touch (I'm all about the human touch today, it seems!) was apparent in listings like this one:
I just want to put in a new sink and john and shower.