Virtual Consumer Mar-Apr 2012

Net of interest

Virtual Consumer column from Ethical Consumer magazine Mar-Apr 2012

The Internet can give a voice to people who previously had none. In business it empowers consumers and helps call powerful corporations to account. It can also lead to more ethical business practice simply because of the dramatic way it changes how the market works. There are three characteristics of the net that can do this.

First the net helps you find people to trade with and things to buy. This is because so much information and so many people have been connected together for the first time - coupled with the enormous power of the search engines like Google.

Second, having found the person you want to trade with or the thing you want to buy, the net can speed up and simplify the transaction.

These two effects are very well demonstrated in trading sites like E-bay and Alibaba. They help you find a buyer or seller, and they make it quick and easy to deal with them.

Third, the net makes it easy to combine the small efforts and contributions of many. This is often called crowd sourcing. The most startling example is Wikipedia.

Banks have never been popular. For example, the practice of charging £30 or more to send an ‘unauthorised overdraft’ letter with the result that a trivial debt becomes much bigger, has frustrated and enraged ordinary customers for years. But it is the reckless behaviour of the (non-mutual) banks in the run up to the credit crunch, speculating with money they didn’t have and leaving us to pick up the tab, that has made them more despised now than ever.

What is interesting is to see the effect of the net – with its ability to find trading partners, simplify transactions and aggregate the actions of many – when applied to the original business of banks:  borrowing and lending.

With Kiva (www.kiva.org) the ethics are up front. It matches individual lenders in the developed world with borrowers in the developing world. The lenders earn good rates of interest. The borrowers get access to microloans they otherwise wouldn’t. Kiva has lent $279m so far, from over 680,000 lenders. No shareholders, no bonuses.

Perhaps even more interesting is Zopa (www.zopa.com). This is a for-profit business but not at all like a bank because the net permits a very light business model. Like Kiva, Zopa uses the first two characteristics: it matches lenders with borrowers and simplifies the transaction. But it also uses the third effect to make large loans less risky by aggregating lots of small loans.

The openness and transparency of the net is enabling new businesses that, whether for a social purpose (like Kiva) or for profit (like Zopa), offer an effective – and more ethical – alternative to conventional models.