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Web Communities for Money Management, Borrowing Gain Currency Net Gains

September 22, 2008

By PAMELA YIP

By Pamela Yip

The Dallas Morning News

What social networking sites such as MySpace and Facebook have done for online personal interaction, Web sites such as Finicity , Prosper and GreenNote are now doing for personal finance.

“This is the second stage of social networking,” said Chris Larsen, chief executive of Prosper. “Social networking started out as communication and entertainment and now has evolved into more basic things such as business services and finance.”

And it shows no sign of letting up.

“Starting from just a few hundred thousand today, we expect 2 million U.S. households will be using social personal finance sites by the end of next year,” according to a May 2007 article by Online Banking Report.

Within five years, the number is expected to grow to about 8 million.

The recently launched Fini-city combines a money management tool with an online support system of mentors, groups and financial experts to help users eliminate debt, increase savings, pay off mortgages and retire early.

“The key to that is that people are just able to be more proactive in their decision-making,” said Steve Smith, chief executive of Finicity.

The site’s money management tool is called “Mvelopes” and is based on traditional envelope budgeting, in which consumers divide their paychecks among paper envelopes designated for spending categories such as mortgage, food and entertainment.

As you spend, the money is deducted from the corresponding electronic envelopes, and the balance is automatically updated.

When the money in an envelope is gone, you must either wait to spend in that category or transfer money from another envelope, knowing that spending in that category will have to be cut back as a result.

Mvelopes links to the user’s bank to automatically retrieve all transactions and keep a running balance of each virtual envelope.

Users of Finicity also share ideas on how to better manage money.

“It’s good to have tools, but it’s very nice to be able to join in a community of people who think the way I do, who may have similar situations as me, a community that can help create the drive, the passion and the desire to follow through,” Smith said.

As a way to facilitate discussion among its customers, investment firm Charles Schwab recently launched an online community for clients who are active traders.

“It’s a place for serious investors who want to discuss strategies and tactics that can help them become better traders,” said Richard Levine, vice president of Charles Schwab Active Trading Services. “It allows for knowledge-building, skill-building, the exchange of information with like-minded investors to pursue a strategy, to pursue a particular investment.”

Dallas investor Paul Scholsberg, who recently joined the Schwab community, expects to interact with highly intelligent investors.

“I wouldn’t use it to go in and say, ‘Tell me the next stock that’s going to go up two points,’

” he said. “It will be a highly focused lead or answer or commentary on some particular subject at the 10,000-foot level.”

One of the hottest areas in social personal finance is peer-to- peer lending.

In such a transaction, people looking for low-cost loans bypass traditional financial institutions and create listings on Web sites that detail how much they want to borrow, what they’re planning to use the money for and how much they’re willing to pay in interest.

Those with money to lend can peruse the listings, which include details about borrowers’ credit histories, and bid on the loans they want to fund.

“There is a financial value to leveraging your social relationships on the Internet, and there is a behavioral aspect in changing the way finance works,” said Larsen, also co-founder of Prosper, which bills itself as the largest people-to-people lending marketplace. “People are much more comfortable in discussing their financial stories.”

Jim Scott likes Prosper so much that he’s a borrower and a lender.

“The more I do it, the more I enjoy just being able to help out people in desperate times who just can’t get loans elsewhere,” said Scott, an information technology manager in Arlington, Texas.

The recent credit crunch has driven more people toward peer-to- peer lending.

“You’re seeing a lot of credit-worthy people who used to have lots of options who have really been limited,” Larsen said. “We’re seeing those people now come to Prosper as another alternative. It’s really changed the type of customer we’re seeing.”

GreenNote allows students to ask for student loans.

“This is a way for a student to tap into their social network, their extended network of family and friends, who may be interested in helping them in their cause for education,” said Akash Agarwal, GreenNote chief executive. “The student creates a profile and invites people, and our system takes over.”

Many consumers use social lending to pay off credit cards, according to a report issued in December by Pleasanton, Calif.- based Javelin Strategy & Research , which conducts research on financial services.

“Although it is a relatively new concept, the demand for paying off credit card balances through P2P loans is substantial and could arrive at approximately $159 billion in funded loans by 2012,” the report said. “At this early stage, higher-income and younger consumers are the most active users, but that will change as the number of P2P lending communities in the U.S. increases and awareness spreads.” What social networking sites such as MySpace and Facebook have done for online personal interaction, Web sites such as Finicity, Prosper and GreenNote are now doing for personal finance.

“This is the second stage of social networking,” said Chris Larsen, chief executive of Prosper. “Social networking started out as communication and entertainment and now has evolved into more basic things such as business services and finance.”

And it shows no sign of letting up.

“Starting from just a few hundred thousand today, we expect 2 million U.S. households will be using social personal finance sites by the end of next year,” according to a May 2007 article by Online Banking Report.

Within five years, the number is expected to grow to about 8 million.

The recently launched Fini-city combines a money management tool with an online support system of mentors, groups and financial experts to help users eliminate debt, increase savings, pay off mortgages and retire early.

“The key to that is that people are just able to be more proactive in their decision-making,” said Steve Smith, chief executive of Finicity.

The site’s money management tool is called “Mvelopes” and is based on traditional envelope budgeting, in which consumers divide their paychecks among paper envelopes designated for spending categories such as mortgage, food and entertainment.

As you spend, the money is deducted from the corresponding electronic envelopes, and the balance is automatically updated.

When the money in an envelope is gone, you must either wait to spend in that category or transfer money from another envelope, knowing that spending in that category will have to be cut back as a result.

Mvelopes links to the user’s bank to automatically retrieve all transactions and keep a running balance of each virtual envelope.

Users of Finicity also share ideas on how to better manage money.

“It’s good to have tools, but it’s very nice to be able to join in a community of people who think the way I do, who may have similar situations as me, a community that can help create the drive, the passion and the desire to follow through,” Smith said.

As a way to facilitate discussion among its customers, investment firm Charles Schwab recently launched an online community for clients who are active traders.

“It’s a place for serious investors who want to discuss strategies and tactics that can help them become better traders,” said Richard Levine, vice president of Charles Schwab Active Trading Services. “It allows for knowledge-building, skill-building, the exchange of information with like-minded investors to pursue a strategy, to pursue a particular investment.”

Dallas investor Paul Scholsberg, who recently joined the Schwab community, expects to interact with highly intelligent investors.

“I wouldn’t use it to go in and say, ‘Tell me the next stock that’s going to go up two points,’” he said. “It will be a highly focused lead or answer or commentary on some particular subject at the 10,000-foot level.”

One of the hottest areas in social personal finance is peer-to- peer lending.

In such a transaction, people looking for low-cost loans bypass traditional financial institutions and create listings on Web sites that detail how much they want to borrow, what they’re planning to use the money for and how much they’re willing to pay in interest.

Those with money to lend can peruse the listings, which include details about borrowers’ credit histories, and bid on the loans they want to fund.

“There is a financial value to leveraging your social relationships on the Internet, and there is a behavioral aspect in changing the way finance works,” said Larsen, also co-founder of Prosper, which bills itself as the largest people-to-people lending marketplace. “People are much more comfortable in discussing their financial stories.”

Jim Scott likes Prosper so much that he’s a borrower and a lender.

“The more I do it, the more I enjoy just being able to help out people in desperate times who just can’t get loans elsewhere,” said Scott, an information technology manager in Arlington, Texas.

The recent credit crunch has driven more people toward peer-to- peer lending.

“You’re seeing a lot of credit-worthy people who used to have lots of options who have really been limited,” Larsen said. “We’re seeing those people now come to Prosper as another alternative. It’s really changed the type of customer we’re seeing.”

GreenNote allows students to ask for student loans.

“This is a way for a student to tap into their social network, their extended network of family and friends, who may be interested in helping them in their cause for education,” said Akash Agarwal, GreenNote chief executive. “The student creates a profile and invites people, and our system takes over.”

Many consumers use social lending to pay off credit cards, according to a report issued in December by Pleasanton, Calif.- based Javelin Strategy & Research, which conducts research on financial services.

“Although it is a relatively new concept, the demand for paying off credit card balances through P2P loans is substantial and could arrive at approximately $159 billion in funded loans by 2012,” the report said. “At this early stage, higher-income and younger consumers are the most active users, but that will change as the number of P2P lending communities in the U.S. increases and awareness spreads.”

lending and borrowing

Lending sites such as Prosper.com allow individuals to give and receive loans. A person can list how much he or she wants to borrow, what it is for, and what interest the individual wants to pay. GreenNote.com offers a similar service for students to ask for student loans.

money management

One of the latest social networking sites aimed at finance is Finicity.com. It creates categories in which to monitor spending. It synchronizes with bank accounts to keep an accurate running balance.

Originally published by BY PAMELA YIP | THE DALLAS MORNING NEWS.

(c) 2008 Virginian – Pilot. Provided by ProQuest LLC. All rights Reserved.