A newcomer in person-to-person lending is avoiding the social networking strategy used by most of the companies in this nascent market and trying to focus instead on reducing risk.
GlobeFunder Ventures Inc. says it will launch its lending platform by next week, at a time when credit can be hard to find and potential lenders in all areas of the financial industry are becoming much more careful about evaluating applicants.
The Kalamazoo, Mich., company is diverging from other P-to-P lenders in another significant way: It has a long-term goal of using its system as the foundation for an international microlending operation to help people in developing nations start businesses.
But its initial focus is lending in this country, using a Web site that at first will resemble a stripped-down version of the sites operated by rivals such as Prosper Marketplace Inc. and Lending Club Corp. Those companies let would-be borrowers post photos and essays as part of their plea for loans, but at GlobeFunder, lenders will see only hard data like credit scores.
"What we will be doing is de-emphasizing, frankly, some of the social network aspects," said Brian Mullally, GlobeFunder's founder and chief executive. "It will resemble more of an online banking site."
Other P-to-P lending sites have based their business model on the idea that individual lenders will work through their sites because they can become emotionally invested in the borrowers.
Prosper, for example, allows lenders to seek applications from specific types of borrowers, such as people who went to the same college or work in the same industry. Borrowers can post detailed descriptions of how they intend to use the funds. These borrowers' pitches often try to explain away or excuse bad credit history. Prosper also gives each application a credit grade.
GlobeFunder will not include any personal details with applications, Mr. Mullally said; instead, it will stress such basic information as the borrowers' credit scores, employment history, and debt-to-income ratios. "We clearly want to emphasize the importance of traditional and fundamental credit metrics," he said.
As part of its attempt to appeal to serious investors, GlobeFunder is promising a less risky pool of borrowers. It will accept applications from only people with credit scores of 640 or above from Experian Group Ltd.; by comparison, Prosper's cutoff is an Experian score of 520. GlobeFunder also will provide lenders portfolio management and analysis tools.
Though people with higher credit scores have other options for borrowing money, Mr. Mullally said they would be attracted by the efficiency offered by his site. GlobeFunder is "trying really to simplify the transaction process between lenders and borrowers."
It is currently licensed to facilitate loans in more than 15 states, and it expects to be licensed in all 50 states by yearend. At first the site will be open only to individuals, but GlobeFunder says it will try to expand the model by recruiting institutional investors as lenders, and Mr. Mullally said he is talking to some hedge funds and alternative asset managers.
Institutional backing also is expected to play a part in the company's next phase: rolling out a microlending service next year in a developing nation, which Mr. Mullally would not name.
John Schoolman, GlobeFunder's chief operating officer, wrote in a company blog post that there are about 10,000 microfinance institutions worldwide, "and many lack easy access to liquid capital."
There is a $300 billion demand being served by $25 billion of funding, Mr. Schoolman wrote. GlobeFunder hopes to link institutions in various countries "to individual and institutional lenders, with the promise of higher returns for all."
The microlending service would operate separately from the P-to-P one, which will allow only U.S. borrowers and lenders to participate.
Mr. Mullally said that his company sees itself competing with banks, rather than with other lending sites, and that there is enough opportunity for all online lending sites to thrive. "This brand new industry has plenty of room to grow."
Other companies in the P-to-P lending market are expanding rapidly. Lending Club has moved beyond its roots as a tool for users of the popular social networking Web site Facebook, and Zopa Ltd., which runs an online lending site in the United Kingdom, hired a San Francisco chief executive in March to prepare for a U.S. launch. Prosper filed in October with the Securities and Exchange Commission to set up a secondary market for loans originated through its site.
Observers took all of these moves as a sign that the online lending market is maturing.
Edward Woods, a senior analyst with the Boston market research firm Celent LLC, said that a mature market should welcome GlobeFunder, but he warned that the company's model may still be ahead of its time.
Even if people do not care for the social networking aspect of the other companies, so far it has proved a key element in helping those sites attract users, Mr. Woods said. Lending Club, for example, at first accepted only users from Facebook's site.
"The [social] network is a great way to reach out to people," he said. "It's a great marketing tool. At a minimum, I need to use it as a distribution medium — as a way to access people."
And though he praised GlobeFunder's focus on fundamentals, Mr. Woods wondered whether everyday lenders would be willing to grant loans by looking just at the numbers.
"I just question: Is the market ready? Is it mature yet?" At other online lending sites, wary lenders "get over the hump of understanding the product by hearing the 'sob story' " that borrowers offer, he said.
Even traditional financial companies often rely on personal interaction when making lending decisions, Mr. Woods said. "The smaller institution that has the local touch" can base loan decisions in part on personal details about borrowers' circumstances. "I use part of that 'sob story' as part of the decision process."
GlobeFunder also should worry that its model is easily to duplicate, he said; Prosper could write a filter that removes photos and personal pitches to present only the numbers to lenders.
