With APRs on credit cards doubling out of the blue, investment options dwindling and banks tightening their loan policies, RaceTalk connected with Kim Muhota – CEO of Pertuity Direct – to discuss how online social lending could play a significant role in freeing up consumer credit and helping the U.S. pull out of the financial market meltdown.
A financial services industry veteran, Kim provides insight into the current credit crunch and how social lending (otherwise known as peer-to-peer) is quickly becoming a viable alternative to traditional banks.
Q: Celent predicts that by 2010, there will be $5.8 billion peer-to-peer loans made in the U.S. – an 800% growth from 2007. Why do you think peer-to-peer lending has taken off the way it has?
Peer-to-peer lending has grown quite fast over the last 2 or so years for a number of reasons. Most recently, there is the issue of the liquidity crisis which means that even the prime borrower or small business owner does not have access to credit as they did a year or two ago. Traditional providers are also raising prices pretty aggressively to drive more revenue growth and compensate for added risk – and this impacts the consumer adversely.
There is also the fact that P2P loans are installment loans and are therefore very transparent and user friendly – in other words, there is no penalty pricing, hidden fees or anything like that. The P2P marketplace offers good potential returns for lenders and allows individuals to participate in a vibrant community of borrowers and lenders. So there are multiple compelling reasons why P2P is becoming more of a main-stream alternative than it was just 2 short years ago.
Q: What are the benefits of taking out a loan on a social lending site, as opposed to a traditional financial institution?
Social lending sites offer loans that are well priced (typically between 6.9% – 17.9%) and have fixed rates. Alternatives like credit cards have been increasing their interest rates across the board and have gotten very aggressive with penalty pricing and unfair fees. Social lending sites offer a loan product that allows you to go through the application and approval process in minutes; any time of the day.
The no-hassles loan option is a much better alternative to having to go into the branch, dealing with paper work and high fees. Further, it’s a great social networking opportunity where borrowers can tell their story and lenders can get to see where their money is going. Most of the lenders and borrowers are like minded individuals looking for a better deal than what they are getting from their bank.
Q: JPMorgan Chase — the largest credit card issuer in the U.S. — recently began adding a $10 fee to borrowers’ monthly balances (which accrues interest) and raise minimum payments to 5% from 2%. Is social lending a viable alternative to credit cards help consumers mitigate debt?
Absolutely. The fact that the loans are fixed term and fixed rate loans means that the consumer knows exactly what their loan payment is going to be and they know exactly how long it will take them to pay off the loan. It’s a great mechanism to get proactive around managing debt.
Q: Do you believe that social lending can play a role in helping to reverse the current economic crisis?
Yes. The current economic crisis is driven in large part to a lack of liquidity in the credit markets. Any option that provides much needed credit liquidity will help solve the current crisis – and the social lending model allows for the liquidity in the credit market by the consumer themselves. So in many ways, it’s the consumer driving the solution directly by participating in the social lending marketplace.
Q: How do you see the social lending space evolving in the next 9 – 12 months, following the October 2008 decision by the SEC to crackdown on the industry?
The recent regulatory changes raise the barrier to entry and increases the price to play in the space for the various companies out there. Most importantly, it provides an added level of regulation which is built to protect the consumer – and that’s always a huge positive. I think we will see more people adapting to the social lending marketplace as it continues to gain awareness and traction broadly. As a result, there is a good chance that we will see one or two innovative banks and financial services companies looking to partner with some of the social lending players as a way to get a head start into what is positioned to become a great customer acquisition channel.
For more of Kim’s thoughts on the current credit and liquidity crisis, you can check out his posts to the Pertuity Direct blog here.
Disclosure: Pertuity Direct is a Racepoint Group client
Yesterday, Google made a move – somewhat discretely – that many have been expecting for some time. The move, bringing Google AdWords to Google News may seem like a meaningless announcement to some, but it could have vast implications on both the news and PR industry.
Steve Rubel hypothesizes that the move makes Google News a “PR playground.” He notes:
“Given the relative ease of launching a simple Google AdWords campaign we’re going to see a lot of companies – some legit, others not – buying up real estate on Google. On the whole, I am bullish about ads in Google News. The PR industry largely missed the first search engine marketing wave and I believe that, at least when it comes to smaller campaigns, we still have time to catch up.”
He raises an interesting point and it will be important to observe how competitors react to this new opportunity. Will PR and marketing departments view it as a new avenue to create influence? The competition is now open. For instance: A keyword like “iPhone,” which has brought up contextual ads for BlackBerry in past Web searches, now brings up the same ads when searching for iPhone news (pictured above).
However, as John Battelle notes, the real buzz around this move will likely be heard from the media and newspaper industry.
“Google devalues everything it touches. Google is great for Google, but it’s terrible for content providers, because it divides that content quantitatively rather than qualitatively. And if you are going to get people to pay for content, you have to encourage them to make qualitative decisions about that content.”
This statement was made before Google News was actually making money off of “distributing” content from newspapers and other outlets. How are newspapers going to feel now that Google is making money off of serving up their news, in a quantitative fashion?
While CNN and Facebook teamed up to let people communicate via Facebook status while watching Obama’s speech Tuesday night, some members of Congress decided to use Twitter instead. While it’s great to see our elected officials communicating directly with their constituents and show that they are real people in touch with who they represent, it also brings about reminders that they need to be cautions about what they post.
At one point Republican congressman Joe Barton (TX) wrote: “Aggie basketball game is about to start on espn2 for those of you that aren’t going to bother watching pelosi smirk for the next hour.” Although his next tweet claimed that the previous post was actually from a staffer, his message was quite clear.
What elected officials have you notice tweeting? It will be interesting to see if they use it as a tool to let everyone know what they’re doing, or if they actually take the time to respond to their followers and have a dialog.
The Kindle 2.0 launch tour was in full effect earlier this week as Jeff Bezos and his Amazon PR team landed him a spot next to Jon Stewart on the Daily Show. Jeff came across as a good pitchman, as he did on Oprah last October, however Stewart was still trying to figure out when the company started making things?
In an unstunningly simple article in PR Week today (“Twitter has suddenly exploded“) we learn amongst other things that Edelman has 17 twittering staff and Racepoint 8, whilst Drew Benvie has twittered 3779 times.
I’d write here things like “AWESOME” and “WOW, HOW ENLIGHTENING”, but I understand sarcasm is the lowest form of wit so I’ll refrain.
What’s with all the numbers? Why on Earth are they the story? But before I explain myself, I will just dwell on the numbers for a minute.
…I don’t know a Racepoint consultant who isn’t on Twitter, and there’s a lot more of us than eight people! How can Porter Novelli global digital director Mat Morrison feel so confident in his data? He should have at least added the caveat that one can only determine when a Twitter user is a consultant from a specific PR consultancy should the individual chose to promote the fact in their personal profile.
Our micro-blog policy does not require consultants to declare their allegiance with Racepoint in their personal profile, but it does require them to declare interest when seeding or promoting a client or a client brand via Twitter.
But let’s move past these numbers to my main concern about this article; it makes next to no attempt at placing the Twitter phenomenon in context with the public relations discipline.
Sure, respect to Drew for the one quote in the article that attempts to move the agenda that way by referencing networking, story mining, issues tracking and news seeding, but the obsession with pointless data masks any kind of interesting story emerging.
There are many good attempts at defining public relations. Regular readers of my blog will know I gravitate towards thinking about it in terms of understanding and exerting influence in order to move stakeholders’ minds and behaviour to where you’d prefer them to be. But whatever it is, it isn’t about Twittering just as it isn’t about column inches or advertising-value-equivalent.
The story here is, or rather should have been, about how to wield tools and services like micro-blogging in the effective execution of your PR campaign strategy and ultimate achievement of your PR objectives.
Let’s take a look at Mat Morrison’s Twitter stream as of 10.35am today. Looking at the last 20 tweets (not a statistically significant sample I’ll grant you, but today I’ve not been inspired to be statistically inspirational), Mat @’s other Twitter users 22 times. Of these, 20 are in the PR and digital business, and 2 are unidentifiable in that regard.
I won’t go further and analyse the content and the ensuing dialogue because I don’t know Mat’s objectives here, but you could conclude from this analysis that he may well be achieving his PR objectives if his customer is himself / Porter Novelli. If his objective is to employ Twitter in achieving campaign success for his agency’s customers, if his objective in working with PR Week on this article was to imply just this, you’re going to have to look at more of his Twitter stream than I have to begin to guess if that’s happening for him.
If you want to know if your use of Twitter is working for you in a professional PR context, work through the normal cascade of objectives -> strategy -> tactics -> measurement. There’s no shortcut.