Chris Larsen, the originator of the online lending channel E-Loan, has a new idea about moving money around, only this one has a decidedly grassroots feel to it. His new venture, called “Prosper,” is billed as “the online marketplace for people-to-people lending.”
It ambitiously promises participants that they can “borrow safely and securely from people just like you.” The company facilitates borrowing and lending, mostly between what it calls “affinity groups,” numbers of people with a common bond, similar to the first credit unions.
An introspective, lean-thinker, Larsen’s notion of lending might be familiar to an older generation — or even a younger one, newly immigrated to the United States.
The idea is neighbor helping neighbor, in a sense. That’s right, just like the good old days when better-heeled people in the community would aid those less well-off. Or, when an older group firmly anchored in a new land would help those just coming in.
When he speaks, it’s clear that at least some of the motivation for creation of the new lending channel comes from Larsen’s disdain for the old ways.
“The heart of the problem when it comes to consumer credit is that only a very small group of elite in society can actually participate. Banks control the market,” Larsen maintains.
“So, someone who may be interested in lending to someone (else) who is underbanked and without a credit score — or maybe to do something socially good — they can’t, because it’s a protected market,” he says. While the borrower may be “unbanked,” Prosper requires the lender to have a bank account from which loans can be transferred.
Dig deeper and you’ll find Larsen is of two minds about the present system, noting that it was created “partially by good regulations,” but then damning it as “partially … a corrupt system.”
He compares Prosper to the online phenomenon eBay and says his new lending idea represents “capitalism for the masses, where everyone can decide what financially and socially makes sense. That’s what we’re trying to do, allow complete open access.”
Social networking fascination
Beyond eBay, Prosper is reflecting America’s latest fascination with other online social networking, like MySpace and FaceBook, where groups of people can exchange, deliver and otherwise share personal information of their choosing. In Larsen’s model, the currency is not gender, job title or astrological sign, but financial information.
Ultimately, he says, this method “helps people understand how credit really works and demystifies the ‘protective cone’ that the banks have. We are all unconscious about what’s really going on in the consumer credit market,” declares Larsen. “A lot of people are sleepwalking about how things really work; this opens their eyes in a powerful way.”
In this new lending model, anyone conceivably could create some kind of community. “We want to be agnostic about what we allow: ethnic, business, merchant,” says Larsen, adding that he hopes this will be an antidote to the current reliance on payday lenders.
Each group leader is independent and can invite members of their community to join under any criteria they choose. “We will make sure they don’t break discrimination laws,” Larsen assures listeners. “They’ll borrow on behalf of themselves and in association with group, and we give a portion of each payment to the group leader.”
He suffers through the nuts and bolts portion of the conversation about Prosper, but it is clear what really excites Larsen: a level playing field in lending, a theme he repeatedly comes back to.
Recalling his days with E-Loan, he says it was “a great company and an efficient distributor. But it was frustrating because we had to deal with the capital market, so we’d get all this technology to have an open, transparent distribution system but we’d still be bounded by a very small group of people who would decide what would or would not get funded.” That was a lasting lesson Larsen took from the E-Loan experience.
Now, with Prosper, he says we have “an opportunity to take money out of the system that is preventing people from having access in the free market. This puts their money to work in a more powerful way. It earns them a better spread and allows diversification,” he says, sounding satisfied.