Thomas Piketty says that when the rate of return on capital is greater than the rate of economic growth ever the long term, the result is a concentration of wealth, and this unequal distribution of wealth causes social and economic instability. However, the current financial system lacks the adequate safety net and many people are left vulnerable to high-interest rates. The wealth inequality thus created is maintained and exacerbated through the following two problems;
1. Oligopoly Credit Card Issuance Market
The opportunity to profit from spare wealth is a closed competition. Obtaining a financial business license is notoriously expensive and difficult with handful of banks earning 80% of credit card revenue in each nation. The oligopoly market allows credit card issuers to charge high rates to both merchants and users.
2. Inaccurate Credit Rating System
Current credit rating system builds a higher barrier to those who need loans the most. The evaluation is based on past records which cannot quantify the true repayment potentials. Moreover, existing wealth is the most important factor in deciding ‘credibility’ rate, and many who did not even gain the chance to build up credit or get employed as salarymen are systematically marginalized.
The self-perpetuating cycle of wealth on top and debt on the bottom must be broken and opportunities of participation and development should become open to the wider public.
While Piketty proposes a global system of progressive wealth taxes to help reduce inequality and avoid the vast majority of wealth coming under the control of a tiny minority, I propose a social credit platform to lessen capital expense for the poor, that helps to reduce income inequality.
Direct Lending Marketplace via Credit Union Network
SOCU users can host groups and grant credit lines to members of groups, which is building their own credit union, or activate those credit lines opened to them, which is using a credit card. We developed SOCU, an online marketplace platform, for traditional credit union cultures in Asia, such as Kemoim in Korea, Tontine in Singapore and Kitty Party in India. The platform provides the following aspects.
1. On-demand Credit Sharing Economy
On every existing P2P lending platform the borrowers must await their application to be processed until the investors make up their mind. On our platform, the investors prepare money beforehand and make transactions on borrowers’ demands. SOCU would sponsor the process of issuing a credit card to borrowers funded by lenders pooling their money. Adding to the existing P2P loan benefits, the lender makes more money because revolving credit interest rates are higher than standard loans’ and the borrowers have much more clarity into the factors that can make his APR go down and credit limit rise over time. This unorthodox approach allows us to offer not only an instant loan service but also a loan-based payment solution on which creditors benefit from cashback rewards as well as interests.
2. Social Credit Rating System
SOCU’s credit lines are incentive-compatible credit assessment mechanisms in which evaluators are physically responsible for ratings that they assign. Thus, SOCU offers unbiased credit ratings of users compared to some of the other P2P lending services that merely employ naïve analysis of social data.
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