Overview on the sharing economy applied to finance
For other industries such as the accommodation or the rides, the sharing economy just find new ways of using existing assets. Within the financial sector, the sharing economy is linked to the notion of decentralized ownership of assets and services with a financial counterparty in a very different way that in the past. The peer-to-peer insurance and lending, the crowdfunding as well as the payments between peoples from the mass population become increasingly used meeting the expectations of the businesses and customers. Some companies decided to be focus on a specific area enabling peoples thanks to their platforms to contract a student debt, connect investors and debtors or allowing to anyone to raise funds for example without using the banking system. These Fintech businesses as they are called, created a collaboration with the financial institutions and like this they can be focus on their own strength. The banks are not very flexible and agile and, fintech businesses, are not really client-centred as the banks are. Furthermore some banks already set up their own P2P solution: KBC has launched Bolero Crowdfunding, BNP Paribas Fortis has forged a partnership with MyMicroinvest for example.
This can also have some good impacts for the country in development, in fact their access of the banking system can sometimes be difficult. For example, in Kenya, M-PESA enabled population to handle deposits and payments using cell phones. This service has been adopted by 90% of the population.
According to McKinsey, 80 percent of customer interaction with their banks is through paying for goods and services. When this is integrated into the service, banks become invisible in everyday spending. Regardless of its criticism, the sharing economy is expected to generate revenues up to $335 billion by 2025, and its impact is predicted to affect nearly all industries. Another research, Sharing Economy: Opportunities, Impacts & Disruptors 2017–2022, forecasts that the sharing economy will reach $40.2 billion in 2022, in terms of platform provider revenues, up from $18.6 billion in 2017.
However, for the moment, the access to the private investors on the sharing economy is reduced. In fact in July 2016, 80% of the capital landed in peer-to-peer was from the institutions.
The fintech companies benefit from an increasing amount of capital investment. They claim to be more human and give sense to the exchanges. There is some digital platforms like VentureCrowd helping the growth of businesses with equity and property. Also, payment startups such as Abra and TransferWise offer lower costs of international money transfers which can benefit particularly for immigrant workers sending money back to their families. Finally Square provides a low cost card reader to any small business for payments processing. Here are some of the biggest player within the financial sector operating in each different function.
Social lending transactions and crowdfunding are one of the most famous use, it happens most often on platforms specialized in this kind of services. It allows lenders and borrowers, with different property and social status, to agree on conditions of the transaction, and on the interest rate which suits them. The participants of the p2p lending can be individuals, small and medium-sized enterprises. Loans are mainly arranged for consumption, small business activity, studies, but there are also offers for mortgage loans. It can be on lending marketplaces such as Zopa or Prosper motivated by economic factors, then it can be a social lending service with micro mortgages due to social motivations with fintech such as Kiva or MyC4. The last kind of lending is through platform such as Virginmoney which facilitate the transfer in private groups such as friends and family. It became much more easy to contract a loan thanks to this. Here are the most powerful companies in this area (Mitrega Niestroj 2013).
Lending Club — An online financial community that brings together creditworthy borrowers and savvy investors so that both can benefit financially.
Zopa — Where people get together to lend and borrow money directly with each other, sidestepping the banks for a better deal.
Prosper — A peer-to-peer lending site that allows people to invest in each other in a way that is financially and socially rewarding.
The crowdfunding is a quick and effective way of rising funds, especially for non-profit organisations. It appeared in 2006. There are several kind of crowdfunding. The lending-based crowdfunding where borrower will have to repay back plus an interest. The equity-based crowdfunding with which investors will receive a share of the company. The third one is the reward-based crowdfunding, the funders will benefit of a non-monetary compensation such as a gift. Finally, the donation-based crowdfunding which is only for personal satisfaction. According to the Crowdfunding Industry Report there is 1.5 billion dollars raised and more than 1 million successful campaigns in the world in 2011. This number follow an important increase every year. Kickstarter is probably the most famous platform (Mitrega Niestroj 2013).
Kickstarter — A crowd-funding site powered by a unique all-or-nothing funding method where projects must be fully-funded or no money changes hands.
The third use in the collaborative finance is the social saving. The money is not stored as the banks do but is saved in case of emergency or exceptional consumption. “People are saving to save” according to the director of SmartPig. That is why funds are usually insured by a third party, in the case of SmartPig it is the Federal Deposit Insurance Corporation (FDIC).
SmartyPig — social savings bank that enables you to save for specific goals and engage friends and family to contribute.
There is also the P2P currency exchange platform which offer several advantages to their users. Because they deal directly with each other, they can negotiate the rate and fees and because funds are moving thanks to domestic account, they can be available quickly. It is very simple through platform such as Transferwize. There is also more and more businesses offering a payment platform with mobile phones without fee. It is what Paypal did since 1999 (Mitrega Niestroj 2013).
Transferwize — Allow the transfer of money between countries without change cost. It helps in the meeting of two peoples who want to exchange different currencies but with crossed need.
