P2P – Social lending The next frontier Sriram Natarajan Consumer Credit Professional

Agenda Introduction What is Social Lending? The Pioneers The Business Model Infrastructure How it works Resolving the Banking Myth Why in the Middle East? Risk Management Transformation True Game Changer Agenda

Introduction

What is Social Lending?

The Pioneers

The Business Model

Infrastructure

How it works

Resolving the Banking Myth

Why in the Middle East?

Risk Management Transformation

True Game Changer

Social Networking Social networking websites are online communities of people who Share common interests and activities,or Who are interested in exploring the interests and activities of others. Typically provide a variety of ways for users to interact, through chat, messaging, email, video, voice chat, file-sharing, blogging, and discussion groups. Facebook, Orkut, Bebo, MySpace and Ebay are the prominent ones Social networks are the most visited sites on the Internet. Social lending is a logical extension of the world moving towards online networking!

Social networking websites are online communities of people who

Share common interests and activities,or

Who are interested in exploring the interests and activities of others.

Typically provide a variety of ways for users to interact, through chat, messaging, email, video, voice chat, file-sharing, blogging, and discussion groups.

Facebook, Orkut, Bebo, MySpace and Ebay are the prominent ones

Social networks are the most visited sites on the Internet.

Social lending is a logical extension of the world moving towards online networking!

Banking 2.0: technologies & trends SOCIAL MEDIA WEB 2.0 RSS Podcasts Photo / Video Sharing Widgets Micro Blogging Customer Reviews Blogging Social Networking Virtual Worlds Predictive Markets P-to-P Lending Online charity

The Future of Online Finance Source: coverage of FinovateStartup on www.Visible- Banking . com (April 2008)

What is P2P / social lending Peer-to-peer lending is a means by which borrowers and lenders may transact business without traditional intermediaries, such as banks. Peer to Peer Lending (P2P Lending) is a new way to borrow money online directly from other people, and for people who want to lend money to make loans directly to other people who need to borrow it. E Social lending allows you to support people you believe in - while making a good return! for Loans?

Peer-to-peer lending is a means by which borrowers and lenders may transact business without traditional intermediaries, such as banks.

Peer to Peer Lending (P2P Lending) is a new way to borrow money online directly from other people, and for people who want to lend money to make loans directly to other people who need to borrow it. E

Social lending allows you to support people you believe in - while making a good return!

The traditional lending model Businesses Banks Consumers Provide credit Meet consumer demand Compete with other banks

Provide credit

Meet consumer demand

Compete with other banks

What P2P is changing! Businesses Lenders Consumers Easy and inexpensive Faster Flexible terms Fast and convenient Easy to use Secure Less hassle Remove the intermediaries Differentiated service Terms mutually agreed.

Easy and inexpensive

Faster

Flexible terms

Fast and convenient

Easy to use

Secure

Less hassle

Remove the intermediaries

Differentiated service

Terms mutually agreed.

Internet competent Financially savvy Stimulated by risk-taking “ Mini-preneur ” Desire control, uniqueness and autonomy Niche Mass Social lending snapshot

Why embrace social media?... Credit crunch Limited trust New customer expectations The power has shifted Limited IT & Marketing Budget Transformation programmes and iconic projects Strategy - Towards Customer Advocacy … where shall we start? Transparency Show we have a soul Customer Advocacy

Credit crunch

Limited trust

New customer expectations

The power has shifted

Limited IT & Marketing Budget

Transformation programmes and iconic projects

Strategy - Towards Customer Advocacy

… where shall we start?

The pioneers www.Zopa.com started the social lending model in UK in February 2005. www.prosper.com followed soon in the US. And thus was born online P2P lending!

www.Zopa.com started the social lending model in UK in February 2005.

www.prosper.com followed soon in the US.

And thus was born online P2P lending!

And many more……. www.loanio.com www.lendingclub.com Virgin Money www.communitylend.com (Canada) www.ppdai.com (China) www.igrin.com.au (Australia) www.pretp2p.com (France) www.loanland.com (Sweden) The spread continues….

www.loanio.com

www.lendingclub.com

Virgin Money

www.communitylend.com (Canada)

www.ppdai.com (China)

www.igrin.com.au (Australia)

www.pretp2p.com (France)

www.loanland.com (Sweden)

The spread continues….

Carving a niche Credit crunch has put banks on the defensive. Personal lending has dried up due to liquidity problems. Increased credit risk has led banks to raise interest rates and fees. Higher cost of funds for banks means lower lending at high prices. Consumers want more control over borrowing. Consumers wary of ‘hard sell’ of ‘add on’ products like PPI, insurance etc by banks. Commoditization by banks. General loss of faith in the banking industry.

Credit crunch has put banks on the defensive.

Personal lending has dried up due to liquidity problems.

Increased credit risk has led banks to raise interest rates and fees.

Higher cost of funds for banks means lower lending at high prices.

Consumers want more control over borrowing.

Consumers wary of ‘hard sell’ of ‘add on’ products like PPI, insurance etc by banks.

Commoditization by banks.

General loss of faith in the banking industry.

P2P lenders offer variant models on the basic premise of a ‘bond market’ for consumers combined with ‘eBay for money’. Balance competitive superiority with efficiency and convenience. Provides a response to the question of ‘why businesses get a better deal from banks than individual borrowers?’ P2P portals act as an enabling service provider to a large mass of web savvy consumers. Offer an ‘anonymous’ alternative to borrowing from family and friends. Offer a potential higher return to individuals on surplus cash. Service Models

P2P lenders offer variant models on the basic premise of a ‘bond market’ for consumers combined with ‘eBay for money’.

Balance competitive superiority with efficiency and convenience.

Provides a response to the question of ‘why businesses get a better deal from banks than individual borrowers?’

P2P portals act as an enabling service provider to a large mass of web savvy consumers.

Offer an ‘anonymous’ alternative to borrowing from family and friends.

Offer a potential higher return to individuals on surplus cash.

P2P infrastructure CREDIT BUREAUX P2P lending portal – pricing, terms, matching Application processing & fulfilment Credit assessment & Rating Account Servicing Collections support Product Management Shared Enterprise functions

P2P lending portal – pricing, terms, matching

Shared Enterprise functions

P2P Platform focused on Pillars of P2P lending Portal Social network White label Risk management Verifications Credit rating Lender Consumer confidence Return Safety Security Borrower Pricing Flexibility Convenience Anonymity Choice

Size of the global opportunity While it is difficult to quantify,a good estimation of P2P potential can be made from the growing trend of consumers using P2P loans to pay off credit card debts. A report by Javelin Strategy group estimates a potential market for P2P at $ 159 Billion by 2012 – derived as a percentage of US credit card outstanding Lafferty Group estimates that P2P could be used to pay off 17% of the estimated $ 920 B US credit card receivables in 2012. Market potential can also be derived from other indices like small ticket loans and global remittances (estimated by IMF at $ 263 Billion in 2007) “ By 2010, social-banking platforms will have captured 10% of the available market for retail lending and financial planning.” Gartner, February 08

While it is difficult to quantify,a good estimation of P2P potential can be made from the growing trend of consumers using P2P loans to pay off credit card debts.

A report by Javelin Strategy group estimates a potential market for P2P at $ 159 Billion by 2012 – derived as a percentage of US credit card outstanding

Lafferty Group estimates that P2P could be used to pay off 17% of the estimated $ 920 B US credit card receivables in 2012.

Market potential can also be derived from other indices like small ticket loans and global remittances (estimated by IMF at $ 263 Billion in 2007)

“ By 2010, social-banking platforms will have captured 10% of the available market for retail lending and financial planning.” Gartner, February 08

Size of the global opportunity

P2P in Middle East Rapid credit growth markets Bank loan/ card Receivables growing at rates of 15% to 30% annually!! Huge ‘underground’ social lending market ‘ Copy/paste’ sales/marketing prevails with little product differentiation amongst lenders Lack of knowledge amongst consumers leading to ‘cartel’ pricing by banks Huge dependence on foreign/expatriate workers Interest and charges by banks perceived to be high.

Rapid credit growth markets

Bank loan/ card Receivables growing at rates of 15% to 30% annually!!

Huge ‘underground’ social lending market

‘ Copy/paste’ sales/marketing prevails with little product differentiation amongst lenders

Lack of knowledge amongst consumers leading to ‘cartel’ pricing by banks

Huge dependence on foreign/expatriate workers

Interest and charges by banks perceived to be high.

The Case for P2P in Middle East Stock market meltdown taking away a sizeable opportunity for investors. Rigid lending structure of banks No room for negotiation for consumers. Very little consumer regulation and laws – consumers perceive banks to be on a stronger wicket. Most importantly: despite there being social networking sites like www.maktoob.com , there is no P2P / social lending structure Hence, the clear first mover advantage !

Stock market meltdown taking away a sizeable opportunity for investors.

Rigid lending structure of banks

No room for negotiation for consumers.

Very little consumer regulation and laws – consumers perceive banks to be on a stronger wicket.

Most importantly: despite there being social networking sites like www.maktoob.com , there is no P2P / social lending structure

Hence, the clear first mover advantage !

Top of the mind concerns on P2P Collections Credit losses Fraud Regulatory overview Acceptance Data protection

Responses P2P platform established by a trusted brand name Robust, interactive systems Transparency in operations Secure regulatory clearances and support Procure ‘godfather’ support from a major institution Promote mass acceptance through ‘social’ channels Optimal use of credit infrastructure – bureau, analytics, data bases Establish an early niche in the lending space Ensure sound infrastructure with due regard to AML, KYC and other regulatory norms. Most importantly …. CREDIBILITY

P2P platform established by a trusted brand name

Robust, interactive systems

Transparency in operations

Secure regulatory clearances and support

Procure ‘godfather’ support from a major institution

Promote mass acceptance through ‘social’ channels

Optimal use of credit infrastructure – bureau, analytics, data bases

Establish an early niche in the lending space

Ensure sound infrastructure with due regard to AML, KYC and other regulatory norms.

Most importantly …. CREDIBILITY

Risk-driven profits Establish strong Risk support and structure to optimize business goals in solicitation, account origination, account management, fraud, cross-sell/retention and collections Improved quality of decisions. Use Modeling for data driven and predictive analysis of customer behavior. Sound ratings system. Create more effective strategies that can be refined and improved through data mining, simulation, regression and modeling. Speed of implementation. Decision strategies are linked with the enterprise data to enable smarter, more consistent decisions in real-time environment.

Establish strong Risk support and structure to optimize business goals in solicitation, account origination, account management, fraud, cross-sell/retention and collections

Improved quality of decisions. Use Modeling for data driven and predictive analysis of customer behavior. Sound ratings system.

Create more effective strategies that can be refined and improved through data mining, simulation, regression and modeling.

Speed of implementation. Decision strategies are linked with the enterprise data to enable smarter, more consistent decisions in real-time environment.

Future Opportunity Cross sell of Insurance Products Advertisement Revenue Social club website Email … .and many more

Cross sell of Insurance Products

Advertisement Revenue

Social club website

Email

… .and many more

True game changer! Capture a piece of the unsecured lending market in the GCC – estimated at over $ 25 B Create a unique offering to shake up the lending industry Introduce social lending through controlled channels Bring out a portion of the ‘underground lending’ to mainstream Create a unique business model to take lending to the masses

Capture a piece of the unsecured lending market in the GCC – estimated at over $ 25 B

Create a unique offering to shake up the lending industry

Introduce social lending through controlled channels

Bring out a portion of the ‘underground lending’ to mainstream

Create a unique business model to take lending to the masses