Friend Microcredit

Project

VisionEasy-to-use mobile app offering a follow-up serviceof off-line cash exchanges/short-term peer-to-peermicrocredit within communities of mutually-trusted people, with real-time clearing of mutual obligations and designated-time direct-debit net settlement

PrincipleWithin a circle of trusted friends, thereare often off-line exchanges of cash Punctual Man, I’m short of cash –can illiquidity you advance me? OK guys, let’s not split hairs Convenience here, I’ll foot the bill, you’ll pay me back later Wouldn’t it be great to have a system to keep track of these exchanges and automatically settle mutual imbalances?

People choose friends and form circles of mutually trusted people1 existing social networks Pick up trusted friends from 2 Import… 3 mutually trusted friends Each circle is composed of A’s Facebook Friends • B• R Circle 1 • C• D A C Circle 2 B’s Facebook Friends • A • R • C• J D B C’s Facebook Friends E • A  • E  • F • B  • D F D’s Facebook Friends G • C• F  • Y Circle 3 • E• X Note: C and F happen to belong to two Etc. different circles

Friends make off-line exchanges of money To whom did you just hand out money?

Notifying Hey. Just handed 9.7 you $ = 5.3 + 3.4 + 1 0 Can youSalma confirm?

AcknowledgingOn Salma’s phone… The system records the transaction and recognizes an obligation from Salma to You Push notification [Name of platform] Hey. Just handed you Other 9.7$ You mutual Can you confirm? friend YES NO 9.7 Salma

Within a circle, mutual obligations are centralized and cleared in real time Time Event Social graph Real-time clearing per circle0 A D A C F C F C F G B E B E D G1 • A hands 3 to B A C F -1 C +2 F A D +3 • E hands 1 to C C • F hands 2 to G 3 1 -3 F G -2 E 2 B E +1 D G B2 • B hands 2 to C A C F -1 C +2 F A C D +3 -2 3 1 -1 2 F G -2 E 2 B E +1 D G B3 • E hands 5 to D A C F -3 -1 C +2 F • E hands 3 to F A C D +3 5 -2 3 -1 -5 1 G -2 2 B E 3 F 2 B E +9 D G4 • C hands 4 to A A C F -3 -1 C +2 F A 4 C D -1 5 +2 3 -1 -5 1 G -2 2 B E 3 F 2 B E +9 D G

At a designated time, the system automatically settles the mutual obligations per circle Circle 1 Circle 2 Circle 3 A -1 +2 C F -3 -1 C +2 F -1 +9 -5 -2 B E D GC is net creditor in circle 1: +2 C is net debitor in circle 2: -1 No cross-circle clearing possible to avoid situation where a net creditor’s refund depends on the solvability/liquidity of someone n degrees of trust awayDirect debit agreement When subscribing to the platform, users agree to a direct debit framework whereby they authorize the payee (the platform) to collect the amount due directly from the payer’s account. Settlement At settlement time, the platform debits the net debitors’ bank accounts and makes money transfers to the net creditors

SettlingMonthly settlement… 4 Collects amount due 7 Money transfer Sends amount due 2 Creditor-bank direct debit Net debitor’s Platform’s Net creditor’s agreement (“contract”) bank bank bank Sends Credits Orders Debits net In other words, it’s a system of amount platform’s money Net creditor’s debitor’s bank short-term,account transfer due peer-to-peer bank account is account 3 1 microcredit 6 5 refunded 8 Platform-debitor direct debit Net debitor agreement (“mandate”) Platform Net creditor Owes to Lends to Circle 1 • A’s account is debited by 1 A -1 +2 C • B’s account is debited by 1 -1 • C’s account is credited by 2 B

Weaknesses1. Risk of counterparty illiquidity/insolvability  But, hey: - They’re small amounts - They’re friends/trusted people2. Business model easily reproducible  But, hey, which business model is not?3. What if off-line pre-DTNS* settlement?  It’s just like any other loan –just don’t forget to notify it on the platform4. Won’t I look like a skinflint?* Designated-Time Net Settlement

Appendix

B2C SEPA Direct Debit Mandate – Template Mandatory fields  Unique mandate reference  Name, address, postal code, country of residence of debtor  Debtor’s IBAN number  BIC code debtor bank  Creditor company name  Creditor’s identifier  Address, postal code, country of the creditor  Type of payment  Contract Reference  Signature place and time and signatures Creditor can decide on the format The dematerialised Mandate-related information is transmitted by the Creditor Bank to the Debtor Bank as part of each Collection, in one single flow

Friend Microcredit

by Cédric Warny

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