Joined the peer-to-peer lending site Prosper a few years back – as a big fan of people-powered solutions I (a) like to support these projects and (b) believe you can’t understand a community product until you live in it for a while. Interestingly, I chose to use a pseudonym – don’t know why since I’m /hunterwalk everywhere else. Guess it was being a bit more private about finances and money.
Anyway, the idea behind Prosper (and similar sites) is that you can register as a borrower and request a loan. You supply an amount and reason; Prosper then adds certain data about your credit worthiness. Peer lenders (other users) bid for part or all of your loan + the lowest interest rate they’ll accept. The loan fills and clears at the lowest interest rate to satisfy the full amount requested (and all lenders get their loans at that interest rate, even if they bid less).
I very quickly participated in a bunch including most notably some early expansion financing for San Francisco tea house Samovar. I never really analyzed my rate of return – some people paid back their loan on schedule, some faster, some defaulted (it felt weird sending a collection agency after them but that’s what happened). But one phenomena definitely caught my eye – affinity lending.
Affinity lending occurred when lenders accepted a lower than market interest rate in order to fund a project or borrower they wanted to support. They were voting with their dollars in a way which gave them emotional satisfaction (sure some might be operating under an assumption that a certain type of borrower would never default because they were of higher moral quality than any credit score could surmise). Examples were college alumni lending to current students of their alma mater, armed services veterans to other veterans, Apple fanboys to businesses or students seeking to “Go Mac,” animal lovers helping fellow pet owners afford medical care for their furry friends. In all these cases there was a reason they would take less money – some level higher on Maslow’s pyramid – love? belonging? esteem?
These same thoughts came when reading the NYTimes article on Apple Stores and employee wages. Putting aside any question about strategic or ethical responsibility on Apple’s part, we need to remember that life isn’t a financial maximization function. Very often we make choices that will yield a greater happiness because of the money we forgo, not because of the money we collect. At least some percentage of the Apple workers went home each day with money in their pocket and a smile on their face. You don’t have to pay the most if you’re the best place to work. And the two are not synonymous.