Author: Guillaume Lebleu

Improving the home loan application process

I recently was very fortunate to purchase a house in San Francisco. As most home buyers, as part of the process, I had to get a loan approval  and to provide a lot of paper-based information. Unsurprisingly, I submitted this information in the form of electronically scanned print outs of various online Web services (thank Science I didn’t have to mail printed statements). This pile of information was then manually verified for accuracy and authenticity, and the relevant information was manually fed to a mortgage approval system.

Here is the information I had to provide:

    1. Hazard insurance policy
    2. Complete institutional statements covering most recent months + as applicable, reasonable explanation and documentation for any large deposits within the last 60 days
    3. Copy of the purchase signed agreement
    4. To verify salary: 1) paystubs for the last 30 days 2) last 2 years W2s
    5. Landlord reference verifying payment history for the past 12 months
    6. Verification of stocks/bons as stated in application
    7. Evidence of residency and employment status in the US
    8. Verified employment with employee through verbal conversation or electronic verification of employment
    9. Verification of applicant’s identity (identification certification document signed by authorized bank representative and faxed)

      I won’t talk about #9, which is simply ridiculous since I’ve applied for this loan at a bank I’ve been banking with since 1998 and who also handles my brokerage account. I don’t know how many times they have verified thoroughfully my identity. I won’t comment on #7, but needless to say that when I know very well that the INS has this information accessible in real-time. Regarding #3, it might already be possible to directly extract from a digitally signed pruchase agreement PDF form the relevant information. If not today, probably very soon.

      What’s really interesting is #1, #2, #4 and #6.

      #1 is information I received from my insurer, but I assume it is available from my insurance’s Web service in HTML/PDF format.

      #2 and #6 (and partially for #4 since I receive my paychecks by wire transfer to my checking account) is information that can be retrieved today directly from my bank or brokerage’s firm Web service.

      There are several building blocks needed to achieve this:

      • Information can be extracted from content. This assumes that the HTML content is either semantically tagged using a (yet to define) microformat, or available in alternative format, say some industry XML standard like ACORD XML for insurance or OFX for banking/brokerage information.
      • I can tell my bank to authorize the inquiring party that they can retrieve specific pieces of information. Also, I can specify to the inquiring party who they can inquire this information from. This is were an authentication delegation protocol like OAuth can be useful.

      #4 (Landlord reference verifying payment history for the past 12 months) is interesting. My current landlord and I banking at the SAME bank, I would have enjoyed the possibility of being able to tag some of my transactions with “rent” and share it with him so that he could validate them.

      What community currency networks we learn from barter networks

      Barter networks such as ITEX, BarterCard or IMS are very poorly understood systems. The word “barter” conjures archaic, depression- or war- era visions of people swapping food for medical supplies.

      In reality, these systems are membership-only closed networks or clubs where small to medium business (typically less than 50 employees) trade their surplus capacity using a currency that is proprietary to each network (most businesses do not operate at full capacity, for instance, many hotels operate at 60% occupancy rate). These small businesses could include a florist, Web site designer or lawyer.

      Instead of trading with, say, U.S. dollars and having to sell their products/services at huge discounts (in buying power) in the open marketplace, they trade with ITEX credits or BarterCard credits, which can only be earned by selling to another business or the network, and can only be redeemed for goods/services from another merchant in the network. The result for participating businesses is that they keep their buying power, but from a limited set of businesses: same buying power with less choice.

      These networks work almost conversely to the national money-based marketplace we are all familiar with. In our marketplace, money is relatively more scarce than the people who accept it. In a barter network, people who accept the club-only money are relatively more scarce than the money, which gives essentially artificial demand (compared to the actual demand on the open marketplace) for their unsold products/services. For instance, some members drive 100 miles to buy wine from another member, simply because they have credits they earned and that member accepts their credits.

      The functions of the operators of these networks are interesting:

      • supply/demand monitoring and balancing: when a business applies for membership, their business is reviewed for relevance. Obviously, you don’t want to have too many businesses providing the same goods/services, since it would defeat the advantage of a membership-only marketplace.
      • credit allocation. Depending on the network’s rules, the member may have to earn credits before it can spend them, or it may be able to get a certain quantity of credits just based on the relevance of their business to the network, i.e. expected demand for their goods/services.  So, a business with very relevant offering gets credit, while one whose business is already overrepresented may not or may get a smaller credit. In some networks, the actual creditworthiness of the business as measured by credit bureaus might be a factor as well.
      • debt collection. If a member leaves, debts may be seeked using standard legal debt collection procedures (in national currency this time).
      • risk management. In some cases, a member goes out of business with a negative balance. To compensate for these losses, the trade network will typically tax all members a small fee on a regular basis, in the propriety currency, not national currency.
      • banking. The network needs to keep track of accounts, credit extended, as well as provide various ways for members to use their balance (check, online, mobile, etc.). The network also generates tax filing reports (barter transactions are taxable in the US via form 1099-B). There is typically no foreign exchange service provided (exchange of trade dollars for national money) and no interest earned/charged on positive/negative balances.

      I’m not saying that barter networks are the panacea. I think they serve the need of their members, but most importantly or their shareholders. In contracts, community currencies server the purpose of their community: neighborhood, social network, etc. Yet, there are several things that community currency systems can learn from these barter networks:

      1. Self-sustainability. A closed community with a proprietary monetary system can sustain only if the system is self-sufficient. The system has to be thought as a self-sustaining ecosystem, and great care must be placed on the participants encouraged to join so that not a single category is over-represented, and so the currency circulates. (Similarly, an open community with its own monetary system that would offer convertibility to other currencies must have balanced flows of goods/services (trade balance) with other communities using other currencies, or will risk a run on its currency: trade matters.)
      2. Fault-tolerant credit system. A credit bureau and a loss pool is probably necessary if the network is quite large. The credit bureau is a pre-emptive tool, and the loss pool is just a practical answer to the reality of business cycles.
      3. Strong debt fulfillment incentives. Debt collection is a problem in a community currency, and IMO this can only be solved by making membership something valuable enough to the member that it would do anything possible to not default on its debt. This can be achieved by making membership socially desirable to members i.e. something they can use to advance their status within their society. The stronger the incentives, and the lower the debt default risk, the stronger the currency.
      4. Reliable and secure operational infrastructure.

      Open a savings account, sponsor a tree


      La Banque BCP participe au reboisement du Portugal

      Originally uploaded by xtof
      I think this is a cute “green” marketing flyer. You open an account and put money there, which is put “to work” somewhere you don’t know about (possibly a deforestation business), and you feel good about it because you sponsored the plantation of a tree.

      So, why not simply having a savings account actually backed by timberland?

      Timberland is a great investment IMO: 4% natural interest rate, and if you don’t need the cash a given year, you just don’t cut the trees (did I mention inflation protected? and actually useful if you can cash it out in firewood?).

      The other advantage would be that you’d actually know where your money is put to work (instead of a mere single tree).

      Using CommunityWay to save a local community service in San Francisco

      Like many community services, Access SF, San Francisco public access station might close its doors because of a $500K budget cut.

      I think Community Way might be a good model for them to raise these $500K. Here is how it would work:

      1. Access SF issues Access SF dollars.we could also call them vouchers or coupons
      2. Access SF negotiates with local businesses to get Access SF dollars accepted as payment for part of what is owned by customers. For instance: a local restaurant would accept 10% payment of the bill in Access SF dollars. Access SF explains that they will advertise Access SF dollars benefit on their channel and Web site, which will attract new business.
      3. Access SF sells Access SF dollars to SF residents on their Web site and at their office. These US dollars are used to fund the $500K.

      Local businesses get advertising. Local residents get to support a community service without losing purchasing power. The community service gets its real dollars.

      If Access SF sells $50 worth of Access SF dollars on average to 10,000 local residents, they’d get their $500K.

      Twitternomics, the Twitter currency, and the monetization of Twitter

      In my previous post, I argued that the ReTweet (RT) is the currency of Twitter. The rationale goes: When you RT, you extend or donate some of your reputation to the Twitter user who originally tweeted, and you should earn something for it, say some RT credits or possibly even some hard dollars. The service ReTweetRank, which ranks people according to how much their tweets are re-tweeted seems to follow the same line of thought:

      Retweets are great indication of the originator’s topical influence and the audience’s interest.

      There is a major issue with my argument though:  it’s not because I donate something to you, that it necessarily has value to you. It only does if you acknowledge so. We can assume it does since you are following the person, but that’s a quite rough estimate.

      So, things are a little more complex and we have to dig a little deeper. It’s good to start with some Twitter economics or Twitternomics:

      When you tweet (or re-tweet), you essentially donate to your audience a piece of information that you think has value to them. But only when your audience acknowledges your tweet’s value, you should earn something from them.

      What are these acknowledgments:

      • The simplest form of acknowledgment is to spend the time to read the Tweet, but unfortunately that’s not trackable. The closest thing is to know which unique Tweets in the authenticated user’s friend timeline has been retrieved from Twitter, which is not easily trackable across all Twitter clients (except by Twitter themselves).
      • The next form of acknowledgment is to click on the link provided in the Tweet, if any. Normally these clicks would be hard to track, but since most Twitter users use URL shortening services like Tr.im, the URL indirection provides a point of tracking how many did visit the URL. One problem is that it is difficult to track who actually clicked, but this could be easily resolved if Twitter or a Twitter intermediary was rewriting all the URLs to include the username of the authenticated user.
      • The next form of acknowledgment is the ReTweet.
      • The ultimate acknowledge is to make the Tweet a favorite. I put this one at the top because it is a persistent acknowledgment, not a transient acknowledgment like the RT or the URL click. But my guess is that it is also not as used as a RT simply because they don’t drive as much traffic (who tracks your favorite Tweets? not many people).

      To come back to when you earn or when you spend Twitter credits or Tweetbucks or RT$:

      • you earn a credit when someone acknowledges your Tweet. Say, 1 Twitter cent for a view, 3 Twitter cents for a click, 5 Twitter cents for a RT and 8 Twitter cents for a fave. This isn’t too far from what I mentioned in last year post How to measure someone’s Whuffie.
      • conversely, you pay 1 Twitter cent for a view, 3 Twitter cents for a click, 5 Twitter cents for a RT and 8 Twitter cents for a fave. In other words, it costs you to be nice to others (giving attention or clicking buttons and writing things takes some of your valuable time indeed).
      • The ReTweet is a special case. If @a retweets @b (“RT @b check out this link http://tr.im/3kbs”), it would make sense that any click on the link or further RT (“RT @a RT @b …”) should earn both @a and @b something. @a acts as a distribution channel and should take a share of the credits earned, say 50%.

      So far, this is a zero sum game with funny money and no-one loses anything.

      Just like RetweetRank, a list of the richest (in Twitter $) Twitter users could be compiled and people may start to compete for a better rank.

      A simple business model might consist in providing a foreign exchange mechanism between Twitter $ and real U.S. dollars. Twitter users with positive balances would be able to offer their Twitter $ for sale, and Twitter users with negative balances would be able to offer to buy in U.S. dollars. Twitter would simply take a commission on the fee.

      Of course, this isn’t incompatible with Twitter offering the possibility for users to pay for RTs rather than charge for them, as a way to provide additional incentives for users to RT.

      “Please ReTweet”: RT as currency and Twitter social ad business model

      There have been various discussions in 2008 about what business model Twitter should use to monetize its user base. I’m not aware of any that have considered how the Retweets (user’s re-posts of existing posts of users’ they follow) could be leveraged into a social ad platform.

      Retweets are a powerful way for people to broaden the audience of their tweets beyond their immediate followers. Some people spontaneously retweet interesting tweets posted by others, but some users actually request others to retweet their posts. Every minute or so, there are several Twitter users asking their followers to “Please RT” a link they tweetted about, whether it is to promote an event, an widget, some marketing offer, or to find someone. Here are some recent examples:

      DuongSheahan: It’s tonight! Christian Women Tweet Up 9pm EST Go here to register: http://bit.ly/N1uv (expand) #cwtu Please RT

      RefugeesIntl: RT @deborah909 Please help me spread the word about this new widget for advocacy groups: http://tinyurl.com/9jfm96

      micaela6955: Win a $50 Pet GC at http://www.consumerqueen.com/?cat=15 Please RT!

      RT @shefinds: We need a NYC intern – please RT to anyone you know http://newyork.craigslist.org/mnh/wri/985342234.html

      Currently, when users kindly retweet these posts as requested by their sender, they do not earn anything, soft or hard dollar. A Retweet is essentially a favor you make to someone because you can and you want. This favor might be worth a lot, considering that many Twitter users have 1000s or 10,000s of followers.

      One way that Twitter users could earn something would be through a favor  bank, or in this case a Retweet bank or Tweetbank for short. The concept of favor bank is not new (I love this one in particular). Paulo Coehlo even mentioned the concept in his book The Zahir.

      Here is how it would work:

      • When you retweet, you are making a favor, and you earn Tweet credits in the amount of the number of followers you have.
      • When you are retweetted, you are using a favor, and you lose Tweet credits as were earned by those retwitting your post.
      • You can’t really go bankrupt here, although you could go deeply negative if you are highly retweetted, which should encourage you to pay back by retweetting others.
      • If you are retweetted a lot, this should prompt others to follow you, which would make your RTs more valuable and make it easier for you to track your “debt”.
      • If you are in debt, and don’t want to be anymore (although it has no real consequences for you), you might be tempted to spam your followers with a lot of RTs. That would be a very bad idea actually, since it would certainly tire your followers who will surely decide to not follow you anymore, making your RTs in turn less valuable and your debt harder to repay.

      This would be a nice little game with no real financial consequence for either one. But it could be pushed a step further with some users actually deciding to incentivize RTs with actual U.S. dollars.

      When you consider that an ad by The Deck displayed in a Twitterific client costs roughly 5 cents (based on their December 2008 statistics/pricing), some may think they deserve a share of the advertising they provide: after all, they generally retweet if they consider that the tweet is relevant to their audience. With a 5 cent per RT, if you only have 20 followers, your RT is worth $1, $100 for 2,000 followers and $500 for 10,000. Not pocket change for many.

      The way it would work is that a user willing to pay for RTs would set a max $ budget for RTs payment. Other users retweetting would earn the same credits as above but redeemed in dollars for the exchange rate of say a few cents, with Twitter taking its share as well.

      A really nice plus of this model is that it would allow Twitter to monetize its user activity on any client, whether Web, Desktop, Mobile, SMS, etc.

      Farmers markets and community currencies

      Crescent City wood token

      Yesterday, I found myself explaining the concept of local community currency to someone who had never heard about them before. Because we were next to a farmers’ market, I picked that context to support my stories about the benefits of local community currencies.

      I built upon the story of the Taft Farms local currency, in which a farmer issued his own money to raise funds for the winter, and I explained that a farmers market could create a bank that would issue paper money redeemable only at the farmers market the following year, possibly at a discount (ex. $9 for $10 face value) and use the cash raised to provide credit to farmers in need during the winter season.

      Additionally, the farmers market bank could promote itself by donating some of this paper money to non-profit organizations of its choice in exchange for ads for the farmers market in promotional materials issued by the non-profit organizations. Non-profits could follow the Community Way and sell this paper money at auctions to raise funds in real cash.

      Last, I explained that the farmers market currency might be denominated in a different unit than the US dollar, say a “basket”, which composition would be defined by the farmer’s market every year. You could buy today baskets and use them as an inflationary hedge if you are a regular customer of the market and are worrying about your fiat national currency losing purchasing power over time.

      Today, I found that some of my examples are not that far-fetched from reality.

      The Farmers Market in Venice, CA has a program, which is very similar to Community Way: it offers certified market money subsidized by vendors to the organizations of their choice in exchange for mention of the donation in the printed materials of the events organized by organizations receiving donations. Organizations can use this market money to purchase good or auction them off to raise funds for the organization.

      I also found two cases of farmers market tokens used as cash alternative: Crescent City Farmers market and Portland Farmers Market both provide a way to buy at one time batches of wood tokens that can be used as cash on the market. This is actually provided as a payment facility for those who want to shop with their credit card at merchants on the market not accepting the, but it could be easily extended to support the scenarios presented above.

      Brazilian community currency helps generate local wealth and jobs

      From the Untergunggenberger Intitut Wörgl blog in Germany Austria, here is a video on the Palmas community currency in Nord-east Brazil, launched several years ago, which has enabled this impoverished community to build and retain wealth locally. Just to give an idea of the scale, Banco Palmas has 2100 associates… 60% of which are below the poverty line.

      A very detailed description is available. Here are the specific points I noted:

      • Banco Palmas, which was started and is managed by local residents, functions as a local credit union that issues low interest rate loans in the alternative currency, the Palma, and provides also a credit card for payment convenience.
      • Access credit does not require documents, but only requires that local resident voucher for the loan. In other words, instead of relying on high-tech PhD risk analysis algorithm, CDS, securitization, and the likes, credit risk analysis is socialized.
      • The bank funds consumption and production reports to be able to better determine what is needed by the community and provide market research for entrepreneurs.
      • The alternative currency, the Palma, is backed by the national currency, and convertible at a 1% fee.
      • The bank has established partnerships with local businesses, and many are providing discounts when paying in Palmas.

      Here are also some amazing numbers from the report:

      • In Ceará, sales in commercial establishments in the community increased by 40% In Ceará, sales in commercial establishment in the community increased by 40%
      • Bankruptcy for local businesses involved with the Bank has never exceeded 3% Bankruptcy for local businesses involved with the bank has never exceeded 3%
      • Crime rates in Ceará, compared to other neighborhoods in the city, are 5-6% lower Crime rates in Ceará, compared to other neighborhoods in the city, are 5-6% lower
      • 900 new jobs were created in the formal and informal sectors since the beginning of the project 900 new jobs were created in the formal and informal sectors since the beginning of the project
      • Of Banco Palmas clients, 82% feel more responsible; 95% consider the Bank an agent in the eradication of hunger and promotion of jobs and income; and 54% feel more solidarity with the community Of Banco Palmas clients, 82% feel more responsible; 95% consider the bank an agent in the eradication of hunger and promotion of jobs and income, and 54% feel more solidarity with the community
      • 11 other municipalities are currently receiving training from Banco Palmas technicians to implant community banks in their cities 11 other municipalities are currently receiving training from Banco Palmas implant technicians to community banks in their cities

      BarterCard offers SMS-based POS solution to cashless trade exchange members

      From Wikipedia:

      Bartercard is the world’s largest barter trading exchange. Bartercard enables member businesses to exchange goods and services with other member businesses without using cash or cash equivalents, or having to engage in the direct two-way swap of goods and/or services. It was established in Australia in 1991 and operates in over 13 countries with a member database of over 55000.

      Members earn Bartercard Trade Dollars for the goods and services they sell and this value is recorded electronically in the member’s account database.

      In January 2008, BarterCard introduced a SMS-based service that allows merchants to process transactions immediately with funds being transferred into their account at point of sale. The service also supports balance inquiry. The user guide can be found here. I also put some screenshots below from their online demo.

      Although the balance inquiry is pretty standard in mobile banking, the SMS-based POS transaction processing is I think really unique.

      To process a sale to a BarterCard , the merchant simply types “Pur [Amount] [BarterCard number]”, sends it to the BarterCard phone number (saved as contact) and if the transaction is successful, receives a 10 digit reference number composed of a 4 digit BarterCard SMSPOS reference number and a 6 digit BarterCard Authorization number.

      Of course, one might ask the kind of protection provided against fraud and the user guide only mentions:

      We do advise you that you retain a proof of sale from the purchaser in the form of a signed receipt of invoice. If the sale is ever contested, you will be required to provide this proof.

      The other security feature is that at registration, members can register to be notified whenever they make a purchase that’s processed via the SMSPOS service (as opposed to processing a purchase).

      So, what’s interesting here is that a very low-tech solution in terms of fraud prevention. It seems that fraud policing is done by members and resolved by BarterCard employees. It would be interested to hear from BarterCard about their fraud statistics, if any. This would be a great demonstration of how social capital can be used to prevent fraud.

      Going back to the functionality of the SMSPOS service, there are two other advanced features:

      • A previous transaction can be retried by typing and sending “Retry [Amount] [BarterCard Number]”
      • A transaction can be reversed (1 hour window) by typing and sending “Rev [Amount] [previously received 4 digit BarterCard SMSPOS reference number], for instance “Rev 40.50 0022″.

      Registration part 1

      Registration part 2

      POS Transaction Processing

      Balance Inquiry