Social Lending P2 P (2) (1)


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P2P lending business model for emerging markets

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  • Emerging markets are often submerging markets!
  • PD is the percentage chance that an account will move to default status. LGD is the economic loss after all factors such as realisation of security,legal,administrative costs,cure rates expressed as a percentage of the exposure at default.
  • Customer Base Salary project: Withdrawing cash from ATM’s only, the payment function is not used (Russia) Lack of education in use Outsourcing: From banks to third parties (e.g. to First Data) Co-branding: Large presence (GE through its DeltaBank acquisition has an IKEA branded card) Card Usage Consumer confidence to use cards – young population wishing to use cards Loyalty schemes: Discounts on annual fees: Hungary,Romania – tiers of fees depending on how many transactions per year Infrastructure Development Risk management tools: Verification systems: required Revolving credit: being encouraged Fraud prevention: EMV uptake and the liability shift starts in January 2006 for Eastern Europe (scale of investment required is huge) Figures from the European Payments Council suggests that conversion to EMV in Eastern Europe is non-existent and is only just beginning EMV is however being widely accepted in the Baltic states (Latvia, Lithuania, Estonia) Other important issues Largely debit issuing Markets are far from universal, interbank organizations such as BKM in turkey undertake payment related functions on behalf of their member banks (these functions vary considerably by organization and country) In some countries certain functions are undertaken by the domestic interbank organizations but some are done by individual banks or by the international schemes (each therefore have their own rules – a frustration for issuers and acquirers with pan-European strategies) Problems caused by the ECB: the euro has not been that successful (no economic reform or higher living standards) as each new country enters will it improve or not? The ECB has continually pushed to keep a lid on inflation, stifling growth
  • Social Lending P2 P (2) (1)

    1. 1. P2P – Social lending The next frontier Sriram Natarajan Consumer Credit Professional
    2. 2. Agenda <ul><li>Introduction </li></ul><ul><li>What is Social Lending? </li></ul><ul><li>The Pioneers </li></ul><ul><li>The Business Model </li></ul><ul><li>Infrastructure </li></ul><ul><li>How it works </li></ul><ul><li>Resolving the Banking Myth </li></ul><ul><li>Why in the Middle East? </li></ul><ul><li>Risk Management Transformation </li></ul><ul><li>True Game Changer </li></ul>Agenda
    3. 3. Social Networking <ul><li>Social networking websites are online communities of people who </li></ul><ul><ul><li>Share common interests and activities,or </li></ul></ul><ul><ul><li>Who are interested in exploring the interests and activities of others. </li></ul></ul><ul><ul><li>Typically provide a variety of ways for users to interact, through chat, messaging, email, video, voice chat, file-sharing, blogging, and discussion groups. </li></ul></ul><ul><li>Facebook, Orkut, Bebo, MySpace and Ebay are the prominent ones </li></ul><ul><li>Social networks are the most visited sites on the Internet. </li></ul><ul><li>Social lending is a logical extension of the world moving towards online networking! </li></ul>
    4. 4. 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
    5. 5. The Future of Online Finance Source: coverage of FinovateStartup on www.Visible- Banking . com (April 2008)
    6. 6. What is P2P / social lending <ul><ul><li>Peer-to-peer lending is a means by which borrowers and lenders may transact business without traditional intermediaries, such as banks. </li></ul></ul><ul><ul><li>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 </li></ul></ul><ul><ul><li>Social lending allows you to support people you believe in - while making a good return! </li></ul></ul>for Loans?
    7. 7. The traditional lending model Businesses Banks Consumers <ul><li>Provide credit </li></ul><ul><li>Meet consumer demand </li></ul><ul><li>Compete with other banks </li></ul>
    8. 8. What P2P is changing! Businesses Lenders Consumers <ul><li>Easy and inexpensive </li></ul><ul><li>Faster </li></ul><ul><li>Flexible terms </li></ul><ul><li>Fast and convenient </li></ul><ul><li>Easy to use </li></ul><ul><li>Secure </li></ul><ul><li>Less hassle </li></ul><ul><li>Remove the intermediaries </li></ul><ul><li>Differentiated service </li></ul><ul><li>Terms mutually agreed. </li></ul>
    9. 9. Internet competent Financially savvy Stimulated by risk-taking “ Mini-preneur ” Desire control, uniqueness and autonomy Niche Mass Social lending snapshot
    10. 10. Why embrace social media?... <ul><li>Credit crunch </li></ul><ul><li>Limited trust </li></ul><ul><li>New customer expectations </li></ul><ul><li>The power has shifted </li></ul><ul><li>Limited IT & Marketing Budget </li></ul><ul><li>Transformation programmes and iconic projects </li></ul><ul><li>Strategy - Towards Customer Advocacy </li></ul><ul><li>… where shall we start? </li></ul>Transparency Show we have a soul Customer Advocacy
    11. 11. The pioneers <ul><li> started the social lending model in UK in February 2005. </li></ul><ul><li> followed soon in the US. </li></ul><ul><li>And thus was born online P2P lending! </li></ul>
    12. 12. And many more……. <ul><li> </li></ul><ul><li> </li></ul><ul><li>Virgin Money </li></ul><ul><li> (Canada) </li></ul><ul><li> (China) </li></ul><ul><li> (Australia) </li></ul><ul><li> (France) </li></ul><ul><li> (Sweden) </li></ul><ul><li>The spread continues…. </li></ul>
    13. 13. Carving a niche <ul><li>Credit crunch has put banks on the defensive. </li></ul><ul><li>Personal lending has dried up due to liquidity problems. </li></ul><ul><li>Increased credit risk has led banks to raise interest rates and fees. </li></ul><ul><li>Higher cost of funds for banks means lower lending at high prices. </li></ul><ul><li>Consumers want more control over borrowing. </li></ul><ul><li>Consumers wary of ‘hard sell’ of ‘add on’ products like PPI, insurance etc by banks. </li></ul><ul><li>Commoditization by banks. </li></ul><ul><li>General loss of faith in the banking industry. </li></ul>
    14. 14. <ul><li>P2P lenders offer variant models on the basic premise of a ‘bond market’ for consumers combined with ‘eBay for money’. </li></ul><ul><li>Balance competitive superiority with efficiency and convenience. </li></ul><ul><li>Provides a response to the question of ‘why businesses get a better deal from banks than individual borrowers?’ </li></ul><ul><li>P2P portals act as an enabling service provider to a large mass of web savvy consumers. </li></ul><ul><li>Offer an ‘anonymous’ alternative to borrowing from family and friends. </li></ul><ul><li>Offer a potential higher return to individuals on surplus cash. </li></ul>Service Models
    15. 15. P2P infrastructure CREDIT BUREAUX <ul><ul><li>P2P lending portal – pricing, terms, matching </li></ul></ul>Application processing & fulfilment Credit assessment & Rating Account Servicing Collections support Product Management <ul><ul><li>Shared Enterprise functions </li></ul></ul>
    16. 16. 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
    17. 17. Size of the global opportunity <ul><li>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. </li></ul><ul><li>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 </li></ul><ul><li>Lafferty Group estimates that P2P could be used to pay off 17% of the estimated $ 920 B US credit card receivables in 2012. </li></ul><ul><li>Market potential can also be derived from other indices like small ticket loans and global remittances (estimated by IMF at $ 263 Billion in 2007) </li></ul><ul><li>“ By 2010, social-banking platforms will have captured 10% of the available market for retail lending and financial planning.” Gartner, February 08 </li></ul>
    18. 18. Size of the global opportunity
    19. 19. P2P in Middle East <ul><ul><li>Rapid credit growth markets </li></ul></ul><ul><ul><li>Bank loan/ card Receivables growing at rates of 15% to 30% annually!! </li></ul></ul><ul><ul><li>Huge ‘underground’ social lending market </li></ul></ul><ul><ul><li>‘ Copy/paste’ sales/marketing prevails with little product differentiation amongst lenders </li></ul></ul><ul><ul><li>Lack of knowledge amongst consumers leading to ‘cartel’ pricing by banks </li></ul></ul><ul><ul><li>Huge dependence on foreign/expatriate workers </li></ul></ul><ul><ul><li>Interest and charges by banks perceived to be high. </li></ul></ul>
    20. 20. The Case for P2P in Middle East <ul><li>Stock market meltdown taking away a sizeable opportunity for investors. </li></ul><ul><li>Rigid lending structure of banks </li></ul><ul><li>No room for negotiation for consumers. </li></ul><ul><li>Very little consumer regulation and laws – consumers perceive banks to be on a stronger wicket. </li></ul><ul><li>Most importantly: despite there being social networking sites like , there is no P2P / social lending structure </li></ul><ul><li>Hence, the clear first mover advantage ! </li></ul>
    21. 21. Top of the mind concerns on P2P Collections Credit losses Fraud Regulatory overview Acceptance Data protection
    22. 22. Responses <ul><li>P2P platform established by a trusted brand name </li></ul><ul><li>Robust, interactive systems </li></ul><ul><li>Transparency in operations </li></ul><ul><li>Secure regulatory clearances and support </li></ul><ul><li>Procure ‘godfather’ support from a major institution </li></ul><ul><li>Promote mass acceptance through ‘social’ channels </li></ul><ul><li>Optimal use of credit infrastructure – bureau, analytics, data bases </li></ul><ul><li>Establish an early niche in the lending space </li></ul><ul><li>Ensure sound infrastructure with due regard to AML, KYC and other regulatory norms. </li></ul><ul><li>Most importantly …. CREDIBILITY </li></ul>
    23. 23. Risk-driven profits <ul><li>Establish strong Risk support and structure to optimize business goals in solicitation, account origination, account management, fraud, cross-sell/retention and collections </li></ul><ul><ul><li>Improved quality of decisions. Use Modeling for data driven and predictive analysis of customer behavior. Sound ratings system. </li></ul></ul><ul><ul><li>Create more effective strategies that can be refined and improved through data mining, simulation, regression and modeling. </li></ul></ul><ul><ul><li>Speed of implementation. Decision strategies are linked with the enterprise data to enable smarter, more consistent decisions in real-time environment. </li></ul></ul>
    24. 24. Future Opportunity <ul><li>Cross sell of Insurance Products </li></ul><ul><li>Advertisement Revenue </li></ul><ul><li>Social club website </li></ul><ul><li>Email </li></ul><ul><li>… .and many more </li></ul>
    25. 25. True game changer! <ul><li>Capture a piece of the unsecured lending market in the GCC – estimated at over $ 25 B </li></ul><ul><li>Create a unique offering to shake up the lending industry </li></ul><ul><li>Introduce social lending through controlled channels </li></ul><ul><li>Bring out a portion of the ‘underground lending’ to mainstream </li></ul><ul><li>Create a unique business model to take lending to the masses </li></ul>