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Jeremy Barton owns a nice Subaru Impreza, but he rarely drives it. As a co-founder of a tech startup in San Francisco, he usually just rides his bike to work. So when Barton heard of a new website called Relay Rides that lets regular people rent out their own cars, it sounded perfect.

“Not only does it help pay my car payment and my insurance, but I also get a really good feeling knowing that someone can use it,” says Barton, who’s 27.

But getting started as a do-it-yourself car rental company proved more difficult than Barton expected. For weeks after he joined Relay Rides, his Subaru continued sitting in its parking spot, unused. With no reviews of Barton or his car on the website, borrowers skipped over him to use cars that already had been well-reviewed.

And when Barton finally received a text message informing him that the car would be rented, he had some concerns. Who was this mystery borrower? Would they trash his car?

“I was nervous about it, to be honest,” says Barton. “I didn’t panic. But I would’ve liked to know more information about the person. It would’ve given me a bit more ease.”

So Barton, the very definition of an early adopter, decided to do something about it. His company, Legit.co, uses data culled from social media sites including Twitter and Facebook to help users on websites similar to Relay Rides figure out who’s trustworthy and who’s not. After all, if Barton had a moment of trepidation about lending his car to a stranger, imagine how much work lies ahead for Relay Rides, as it tries to expand its network of car lenders and borrowers across America.

“To create a true collaborative consumption industry, finding a way to establish trust between strangers is an absolute requirement,” says Shelby Clark, co-founder of Relay Rides.com.

And yet, despite the hurdles, it’s happening. Consider the case of Airbnb.com, a website that lets people rent out their apartments directly. According to the company’s website, AirBnB rents out apartments in more than 19,000 cities and 192 countries, and consumers have booked more than 2 million nights through the service. Then there are the peer-to-peer lending websites like Zopa.com, Prosper and Lending Club, which collectively facilitate the lending of billions of dollars a year between peers all over the world. To date, according to stats on its site, Lending Club alone has processed more than $460 billion dollars in loans that have generated nearly $40 million dollars in interest paid to investors.

The activity on all of these sites is a form of “collaborative consumption.” That sounds like a mouthful, but actually it’s very simple. For the last two centuries, capitalism has grown around the idea that if you need something, you buy it. Need to drive to work? Buy a car. Need to mow your grass? Buy a lawnmower. Need any service at all, from babysitting to grocery delivery to a college class on how to use Excel spreadsheets? Buy them.

All About Community

Collaborative consumption is based on the idea that each of these problems actually could be solved in a variety of different ways, often at greater profit to the seller and lower cost to the person in need. Instead of buying a car, you could use a website to connect with people looking to share their cars, or others hoping to carpool. Rather than buying a garage full of lawn tools that get used once a month, a collaborative consumption service could help you barter tools and lawn care services with your neighbors. To handle those annoying chores of modern life like carting home groceries or building Ikea furniture, maybe you could use an online community to find people who actually like doing those things, and who would trade their services for access to things you already know or own.

“The generation I’m in values experiences and purpose more than material goods,” says Michael Karnjanaprakorn, a cofounder of Skillshare.com, where people offer to teach each other classes on anything from how to make baby food to becoming a pro flea market shopper. “People say, ‘I don’t need to buy this stuff anymore, so why don’t I make my life richer and have better experiences?'”

There’s another realization at work here, too: To sell things, we no longer need so many middlemen. The Internet is a peer-to-peer distribution mechanism that allows individuals to conduct transactions directly with one another.

Considered individually, a website like Relay Rides seems like exactly that: Just one more website. But taken together, collaborative peer-to-peer sites actually are at the core of a brand-new industry, one that supporters say could alter the fundamental way that commerce works.

“I believe that we’ll look back and see this period as a collaborative revolution,” Rachel Botsman, a writer and entrepreneur who focuses on collaborative companies, told an audience at a recent TED conference, “a turning point where we use technology to reinvent entire sectors, leapfrog over broken consumer models, and find a healthier balance between the needs of individuals, the needs of companies and the greater good of society.”

Heady stuff. But everybody who works in this new collaborative consumption field agrees that none of that transformation can happen until they figure out ways to build real trust online. Which is why the brand-new industry of collaborative consumption has sprouted an even newer industry: Trust verification. In the last few months, a score of small startup companies has spring up, all of them trying to figure out ways to help users of collaborative websites figure out whom to trust, and whom to avoid.

The New System of Credit

What they’re trying to create, really, is a new system of credit for online interactions. To put it simply, trust verification is to collaborative consumption websites as credit scores are to traditional banks and lenders. When a bank lends you money for a mortgage or for credit card purchases, they are taking a risk. How do they know that you will pay back what you’ve borrowed? Traditional lenders use credit scores to assess the likelihood that you will default on your debts. (Some lenders, including Brett King, founder of Movenbank, foresee a day when data from social media may be used alongside traditional data like FICO scores to determine whether people qualify for credit.)

Similarly, if someone lends you their car, they’re taking a risk. They’re giving you credit, in the form of their car. How do they know you won’t trash their car and stick them with the repair bill?

Honestly, they don’t. Any ne’er-do-well could go to any number of websites—Relay Rides, Zimrides, WhipCar—borrow a car today, and destroy it. Tomorrow they could sign up on the next site and do the same thing all over again. Since there’s no way to track bad behavior across multiple sites, there’s no trusted way to weed out the few bad actors who make the whole system dangerous for everybody else.

“The most important thing, I think, is if you do not behave well on Relay Rides, you cannot get away from that,” Clark says. “I want that disincentive. If you don’t pay your credit card, you cant just eliminate that form your credit report. It’s going to follow you around.”

If they figure out this fundamental problem quickly, supporters believe that collaborative consumption could take its place alongside Henry Ford’s assembly line as a major development in modern economic history. They may be able to create an entirely new system of credit, one which take more into account than the information in traditional credit scores.

If they fail, the whole collaborative consumption experiment could wither and die (as industry insiders feared it might this summer after Airbnb, one of the biggest collaborative sites, fumbled its reaction to the industry’s first-ever trust crisis.)

“Somebody needs to figure out a really solid solution to this problem,” Barton says.

A Problem of Trust

Rachel Botsman is a graduate of Harvard and Oxford, a partner in the venture fund Collaborative Lab, and an eloquent cheerleader for collaborative consumption. In the United States, she also happens to enjoy an excellent credit rating.

But when Botsman and her husband moved to Australia, none of that mattered. Suddenly, she had no credit history at all. That meant she couldn’t do all sorts of basic things, like get a cell phone.

The same thing happens to Internet users every day. A regular Ebay seller may have a perfect five-star approval rating built over five years of honest dealings. But if that person goes to Relay Rides or Airbnb to rent out her car or her apartment, suddenly she’s back to square one. Nobody knows her. Nobody trusts her. It’s not that she has bad credit. She has no credit at all.

“You’re like a ghost in the system,” Botsman says. “Nobody knows if they can trust you, and you don’t fare very well.”

Once a user has gotten established in a new online sharing community, there are still opportunities for trouble. Last summer a number Airbnb users complained that renters they had found through the site trashed their homes. One woman found her jewelry stolen and her apartment ransacked, according to her blog post about the incident. A man came home to discover drug paraphernalia in his house. The renters also stole his birth certificate, according to his written account.

This was a major problem, not just for Airbnb but for all collaborative websites.

“The troubles at Airbnb this summer were a wakeup call,” says Karnjanaprakorn.

To compound the problem Brian Chesky, Airbnb’s co-founder and CEO, admitted that the company’s response was too slow and insensitive.

“We dropped the ball,” Chesky told The New York Times. Airbnb did not respond to multiple requests for comment for this story.

After that initial stumble, however, Airbnb and other collaborative websites responded swiftly. For its part, Airbnb announced it would cover up to $50,000 in losses due to theft or vandalism for people who rent out their homes using the site. The company also added a 24-hour hotline for people experiencing problems with Airbnb rentals, and doubled its customer support staff.

The incident reverberated around the collaborative consumption industry. All of sudden, companies realized that building systems of trust into their websites isn’t merely a nice thing to do. It’s a business necessity, especially when people are renting out such intimate and valuable things as their cars, homes, garden spaces and personal skills.

“The Airbnb thing this summer took a discussion that was important and not urgent, and made it urgent,” Clark says.

What It Boils Down To

In very short order, entrepreneurs in the collaborative consumption industry were learning what matters most to consumers who might use their sites. These boil down to two primary questions:

  1. Identity. Are the people we meet online actually the people they claim to be?
  2. Trust. Can we trust the people we meet on your site to be respectful and honest?

“The most important thing we can do for our users is make a really trustworthy experience for them,” says John Zimmer, cofounder of ZimRide.com, a trip sharing website.

Virtually every collaborative consumption website has a system, however rudimentary, for establishing identity and trust. The most common is also the simplest: Letting users connect their profiles to Facebook and Twitter. If someone has a hundred friends on Facebook or a few dozen Twitter followers, the thinking goes: It’s probably a good bet that they’re a real person.

And if users can see that they visit some of the same restaurants, like some of the same bands or live in the same neighborhood, they may feel more comfortable sharing their homes, cars and knowledge.

Skillshare.com is a website where people offer to teach each other classes on everything from personal finance to still life painting. The only thing that’s needed before you join is a link to Facebook and Twitter, where prospective teachers and classmates can go to check you out. Do all your profile photos look like the same person? Do you say you live in the same city and have similar interests across multiple sites? Linking to multiple social media sites allows users to cross-reference each other.

“You have Twitter, LinkedIn and Facebook where your trustworthiness is already verified by other people and the things you do,” says Michael Karnjanaprakorn, a cofounder of Skillshare.

Some in the industry think that may be good enough.

“I don’t need anything fancy,” Karnjanaprakorn says. “When you have Twitter, LinkedIn and Facebook, where your trustworthiness is already verified by other people and the things you do, I can tell, “Oh, it’s cool. I can trust this person.”

And once people use social media links to open the front door to a new collaborative community, reviews by other users is what enables them to stay.

“All of it revolves around what other people say about you,” says Karnjanaprakorn. “That’s all that matters.”

A New Industry Is Born

Others think that to really take off, collaborative consumption websites must do more. Instead of merely a key to unlock the front door, they envision an online system of trust verification that works much the way that credit scores work in the offline world: An inescapable record of one’s behavior, for good as well as for ill.

“It’s no different than a credit score on the Internet,” Karnjanaprakorn says.

To create a trust-based scoring system for the Internet, the first issue is portability. As Botsman learned, people who spent years building up strong reputations as Ebay sellers want to take their reputations along as they join new sites. Checking someone’s Facebook profile is one way to do that, but it doesn’t carry the same weight as scores, ratings and reviews that are already integrated into the collaborative site.

“That’s a problem,” Botsman says. “It’s got to work the first time, or else people give up.”

That’s why a number of companies are working on different versions of a trust score. Trustcloud is a New York-based startup that’s been in business for a year. Its model is to scan social media sites like Facebook and Twitter, looking for data that might infer trustworthiness. The company’s algorithms weigh variables such as how many Facebook friends a person has, how quickly she responds to Tweets, and whether she Tweets consistently, without major gaps.

From there, Trustcloud confers badges on people. Where the Boy Scouts give merit badges for archery and citizenship, Trustcloud’s badges have to do with different measures of trust. There’s a badge for people who are transparent—their personal details are consistent across multiple social networking sites. Another badge is for connectors—people with lots of Facebook friends and Twitter followers. Another is for people deemed “Worldly” for Tweeting from multiple countries.

Trustcloud plans to make the badges portable – once people get a badge, they will be able take it with them from site to site, showing that they have demonstrated elements of trustworthiness. And the best thing for Trustcloud is that all this data is already available now, for free.

The Controversy

Even inside this still-small and close-knit industry, the strategy of using social media to determine trustworthiness is controversial. Critics say that approach is inexpensive, but not necessarily reliable.

“They’re going to over-rely on social media indicators because it’s one of the easiest places to aggregate data,” Botsman says. “But that’s not an accurate representation of whether people can be trusted. I might stop using Facebook for two weeks, but that’s because I went fishing, not because I’m untrustworthy.”

The companies defend the practice. Scanning social media doesn’t tell you everything you need to know about someone, but it may indicate a bare minimum of trustworthiness.

“If you’re running form the law, you’re probably not Tweeting,” says Chuck Chesler, president of Trustcloud. “If you’re tweeting from multiple countries, that means you’re actively telling people who you are and where you are.”

Moreover, entrepreneurs say, they’re constantly trying to get access to more kinds of data. For example, Relay Rides is so concerned with establishing trust that the company pays to check the driving record of every borrower, Clark says. Companies also are working to tweak existing algorithms and write new ones to create better indicators of a person’s trustworthiness.

“Were in the framework constantly, looking to create more badges, better badges,” Chesler says.

Portability cuts both ways, of course. Consumers with good reputations might want to carry their pasts with them; consumers with bad reputations might hope to escape them. Conversely, collaborative consumption entrepreneurs don’t want the vandals who destroyed property using Airbnb to simply switch to Couchsurfing.org and do the same damage all over again.

“If you use the system poorly, your reputation is going to follow you,” Clark says.

In the nascent world of trust verification, this is one of those places where rubber meets road. Just like a credit score can be good or bad news based on a consumer’s personal payment history, so will a portable trust score be a double-edged sword depending on how people behave on the Internet.

Will consumers accept that? The system doesn’t exist yet, so no one really knows. “It means creating something meaningful and portable for the good and for the bad,” Clark says.

Another variable that’s yet to be figured out is control. Specifically, how to use measures of trust to give users increased control in choosing which people to do business with. One current example is ThredUp.com, where parents can buy and sell children’s clothes and toys. Over time, used earn “stylie points” by earning positive reviews from other parents about the quality and style of the goods they sell.

Stylie points become a ranking system, where people with few points are barred from seeing or interacting with people who have lots of points. The more stylie points users earn, the more they are introduced to higher-rated sellers, and the more access they get to top-quality stuff.

“That’s where reputation is becoming a currency that influences what you can access,” Botsman says.

Over at Relay Rides, Clark is considering a similar system. Right now, any user on the site can access any car on the site. But the company’s leaders are thinking about starting a points system where people with more points can access cooler, more expensive cars, like Audis and Teslas. Other companies, including Airbnb, take a more cautious tack. After its summer debacle, the website promised to pay hosts up to $50,000 in the event that guests rob or vandalize their homes.

Conversely, you may lose points if you damage a borrowed car, which could result in limiting which cars you can access, or getting thrown off the site entirely.

“We’re talking about it,” Clark says. “We’re building a robust online feedback system so each side rates the other. Holding people accountable for their actions is really important.”

Where To Now?

The online trust verification industry is so new, it’s hard to even call it an industry. Trustcloud is a year old. Legit.co is four months old. Many other companies dove into the industry in the past few months.

“I feel like some of them have seen a buzz and have jumped on the bandwagon, and not really understood how difficult and complicated this is,” Botsman says.

Some of those companies will last, insiders predict. Many won’t. To survive, they need to do many things at once. First, they need to figure out what data they can access. For some startups, that may prove an insurmountable hurdle.

“It’s so hard to build a system like that unless you’re a Facebook-like platform and you have access to all that data,” Zimmer says. “It’s hard for me to imagine how a startup can do that.”

While Facebook may own a motherlode of data on its users, part of the site’s success is allowing other sites to tap into that well by accessing its application programming interface, or API. That gives companies like Trustcloud plenty of data they can use to predict individuals’ future behavior with at least some degree of certainty, Chesler says.

“We all leave a tremendous data trail across the Internet,” Chesler says. “If you’re on the web and you’re using something for free, you are the product.”

Once they get access to huge piles of data, what do trust verification startups do with it? How do they turn Tweets and Facebook updates into reliable indicators of trustworthiness? Startup leaders say they’re just beginning to figure that out.

“The #1 job in Silicon Valley is no longer a developer,” Chesler says. “It’s a statistician to analyze all this data that’s being created.”

Next, trust verification companies will need to get the big boys on board. Companies like Airbnb and Taskrabbit.com, a website where people can barter skills like wrapping Christmas presents and building Ikea furniture, have built up user bases over several years. Now they have their own systems of trust, and those systems help keep existing users within the fold.

Put differently, why would an established site like Taskrabbit want to help some knockoff competitor (Taskbunny, anyone?) steal its most important asset? The answer: Users.

“Marketplaces have validated to us that this is a concern,” Barton says.

Finally, trust verification companies will have to get users to buy in. After all, what the leaders of websites like Legit have in mind is not merely a simple star system that determines whether you can sell things on Ebay. This entirely new system of credit, based on trust, follows you everywhere you go online. How does such a system track us across the Internet but still maintain privacy? How do consumers correct wrong information or challenge bad reviews?

In short, if collaborative consumption websites want to create a system akin to credit scores, how do they avoid the problems of inaccuracy and opacity that plague the “real” credit scoring system?

Of course, like any good entrepreneur, many collaborative consumption leaders spin that problem as an opportunity.

“Who said the FICO score is the only way?” Chesler says. “What about the rest of your life?”

Very soon, collaborative consumption websites may know more than banks and credit card companies about the rest of their users’ lives. The current crop of small trust verification websites will be winnowed down to just a few, insiders like Karnjanaprakorn say. The victors will help create a new system of credit, one based on trust, one that follows us everywhere we go online, one that hopefully makes it safer to share the stuff and skills we already own.

“I think that in a few years from today, you’ll see one company will win,” says Karnjanaprakorn, “and that’s how you will determine your identity and trustworthiness on the Internet.”

(Correction: An earlier version of this story included two statistics attributed to Rachel Botsman, one of our sources, which stated that “fewer visitors to [New York City] will sleep in a hotel bed than in beds reserved through Airbnb.com” and that, “In the United Kingdom, 10 percent of all lending is done through peer-to-peer websites.” Neither of these stats has been independently verified and as a result we have removed them from the story until they can be.)

(Disclosure: Chuck Chesler, one of the sources in this story, is second cousin to Credit.com’s Editor-In-Chief Michael Schreiber. Mike introduced me to him as a potential source for a story after the two discussed collaborative consumption at a family brunch in New Jersey. Bagels were served.)

Image: GOIABA (Goiabarea), via Flickr.com

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