There is a sense of satisfaction that comes from the idea of sharing an underutilized asset and putting it to better use. The sharing economy took off after the financial crisis as a mostly financially motivated behavior, but has now become a socially accepted and socially sought after way of life. Technology has enabled companies to build online platforms that facilitate these transactions...
An effective sharing economy company does two things well. First, it enables connections that would not otherwise have been possible; and second, it greases the wheels of the transaction. Take the example of Airbnb, which enables the sharing of homes. Airbnb enables people to find each other who otherwise would not; and it provides insurance to the homeowner in case of damage by the renter. Lending Club is the leading sharing economy company for money, and money happens to be the most widely available and underutilized asset. Our platform not only matches people up who couldn’t otherwise have found each other (and keeps their identities anonymous) – it also provides all of the infrastructure for pricing and servicing loans, ensuring borrowers get their money and helping investors get paid back. A successful sharing economy company doesn’t just facilitate connections – it adds value for the people who participate in its marketplace.
Sharing economy companies tend to experience strong network effects, since having the largest market for anything makes one ecosystem the natural choice for individuals on both sides of the equation. This is especially true in verticals with strong network effects – either where having the most selection is critical (as for Airbnb) or where having the most data is (think Lending Club).
But there is more to the sharing economy than financial utility and network effects. A shift has occurred in our psyche. In both the U.S. and in Europe, the year 2007 represented a new level of consumerism (with consumer spend and credit card borrowing hitting all-time highs). The next two years saw a backlash against these excesses. Google searches for “happiness” more than doubled; The Four Hour Work Week encouraged us to think in new ways; Upworthy encouraged us to share “things that matter.”
Emotionally, sharing with each other provides the benefit of knowing you’ve helped someone out.
The sharing economy taps into both the rational and the emotional sides of this trend. Rationally, it makes sense to share – increasing utilization of existing assets creates value for both sides. Emotionally, sharing with each other provides the benefit of knowing you’ve helped someone out. Higher unemployment fed both of these impulses: more people had spare time and a need for alternative sources of income, and the feeling that times were tough enhanced the emotional appeal of sharing. We hear from Lending Club investors that they like the fact that they’re helping people to save money.
What trends are we seeing? First, more niches. Market leaders are established in major verticals (leading sharing economy companies Uber, Airbnb and Lending Club are three of the 10 most valuable private VC-funded companies in the US), but smaller niches are emerging. Now you can share not just your car, but your parking space, your cat or your skills as an MBA.
Second, we are seeing an ecosystem develop around the leaders of the sharing economy. In the case of Lending Club the largest industry conference dedicated to marketplace lending, LendIt, had over 100 companies presenting. Besides the flurry of lending marketplaces, we saw a clear emergence of new business models designed to provide additional services or products to Lending Club customers.
Airbnb, similarly, has spawned a growing network of companies to manage, host and clean your rental, to name a few. A larger ecosystem leads to more innovation and more choices for customers on both sides of the marketplace, so we view this trend as positive and a validation of the strength of these business models.
Sharing money is essentially what the banks have been doing for millennia. We’re using technology to make that more efficient, which means you get more of the benefits, whether you’re lending or borrowing.
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