With so much being spoken about new recruitment strategies in HR using social networking, I wondered if it is only the HR managers who could benefit from networking sites. In the new age of social networking where people meet online, discuss and benefit from networking, I came across a blog which discussed people lending to each other through a networking platform which resulted in lesser cost and faster disbursement. After researching a little more I realized that though this was a recent development, banks have already been using social networking sites for different purposes such as community building, product research, customer service, marketing and promotion and to be more transparent. But by using the networking sites to lend and to borrow, people can eliminate a vital financial intermediary, the traditional banks.
Banking is based on trust. With its risk management ability and with the help of information from credit bureaus, it has been able to lend to borrowers who are likely to pay back thus reducing the delinquency for banks. Banks earn their profits by lending at a higher interest rate than what it has accepted the deposit with. It is but obvious that with banks acting as financial intermediaries, the cost of operating plus the profit margin has to be borne by the borrower. When we borrow from our friends we are likely to charge no interest or low interest if it is a friend who is not so close. Imagine if members of groups with common interest (online community) are your friends and are interested in lending and borrowing. This can eliminate the cost of having an intermediary and the community can operate with their own conditions. The question still remains as to how to reduce the risk associated with lending to a borrower.
Websites like prosper.com, zopa.com, virginmoney.com and Facebook lendingclub have been lending loans over $700 million during the past few years. It is projected to reach over seven billion dollars by the end of 2011. These websites have a number of loan requests listing along with the purpose for which the loan is to be availed. The websites then give the borrowers a credit score based on credit rating given by the credit bureaus. Lenders may then choose as to which loan would they want to fund and they can fund as little as $25 for each listing of borrowers. Lending to a large number of borrowers would help lenders diversify their risk and they can take a call as to who needs to given the loan.