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Microfinancing: Finance Or Retail?

Microlending is the concept of lending a small amount of money to a borrower either through debt lending or equity lending.  On the surface this sounds like banking and finance. But are peer to peer lending communities strictly about finance?  Or is attracting investors to this new type of lending about something else altogether?

Traditional banking relationships involve a borrower and a lender. Sometimes there are a handful of lenders involved. But it is usually a pretty constrained relationship, the type we call a one-to-one relationship with one borrower and one lender. By contrast, with peer to peer lending there are many investors involved in funding a project. Likewise in consumer retail, where the relationship is between one brand and many consumers forming a many-to-one relationship. For this reason a borrower looking to microfinance has to employ completely different tactics than a borrower looking for traditional bank financing.

Microlending portals are essentially communities where a product (in this case, a project that requires financing) is matched with a set of customers, known as investors. Offering the right product to the right customer is Consumer Marketing 101.  But since banks haven't traditionally treated their clients like customers, at least not in the same ways that direct-to-consumer companies have, this is a opportunity.  Just as traditional lending has started making room for microfinance or "crowdfunding," the marketing folks for microlending communities need to embrace the tactics that consumer brands have been using for decades. Having to acquire a customer - or in this case an investor - one person at a time is a completely different beast. So as much as crowdfunding marketplaces fall into the finance category, they are much more similar to a marketing platform that matches customers to products. Digital marketing techniques like email marketing, social media engagement and advertising, hyper-local relationship management, link building, and paid search all need to be used. Traditional offline promotions can also be integrated with a call to action to drive offline traffic to the online marketplace.

So back to my original question: Is peer to peer microfinancing about only finance? Clearly the answer is NO. Rather, it's about building a community and shaping it into a marketplace, drawing in investors to match with borrowers (customers paired with product).  It's non-traditional for finance and the ways in which projects are marketed, promoted and subsequently funded are new.  And there is good news here as we see many solid ways to use consumer marketing tactics that have been successful.

I'd love to hear from others who work on the marketing side of peer to peer financing marketplaces. What traditional tactics have worked for you? Are you focused mostly on digital marketing? What approaches have really resonated with your lending community?

Please comment below or email me directly: nicole@groundfloor.us.

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