Truly brilliant and unique Internet business ideas are rare. Most, like Amazon, are merely a translation or expansion of real-world stores into the on-line realm. Really smart concepts like eBay could only exist in cyberspace and are peer-to-peer based, which means they offer an environment in which individuals can participate in business in a way that was never possible before on such a large scale.

The latest of these great ideas is so far only available to citizens of the U.S. and the U.K., where Prosper (www.prosper.com/) and Zopa (www.zopa.co.uk/), respectively, operate the first peer-to-peer money-lending networks. There are some differences between the two companies, but basically a prospective borrower asks for the loan of a sum of money, and people interested in lending money supply it. Naturally, all the standard rules of credit are in effect, from loan qualification to penalties for defaulting, but the process sidesteps the traditional banking hierarchy. The companies collect a small amount of the loan value as their piece of the pie.

In the October 2006 issue of Esquire, financial columnist Ken Kurson explains that Prosper was started by E-Loan cofounder (with Janina Pawlowski) Chris Larsen. E-Loan, which Kurson extolled as an investment opportunity a couple of years earlier, operates like a mortgage broker service (although for a wider variety of loans). It shops your application around to established lending houses, which either pass on it or make an offer of X dollars at Y-percent interest. What Prosper and Zopa do is more akin to the concept of microlending pioneered in developing countries. (That model just netted innovator Muhammad Yunus a Nobel Peace Prize.) People are graded for their credit scores and interest rates, and post applications. At Zopa, they are further grouped by the proposed length of the loan (one to five years), while Prosper operates with a fixed three-year term. With both companies, however, there are no penalties for early repayment.

On the funding side are people who wish to accept a little risk in order to make more money than a bank deposit provides, just folks with a few bucks to loan out—few being the operative word. Potential bankers with sums in the low two digits are not turned away. Furthermore, you aren't required to lend to a single individual. At Zopa, if you kick in £500 or more, it will automatically be split among at least 50 borrowers. In effect, Zopa is a quasi-traditional lending institution funded by individuals who've contributed at least £10.

Over at Prosper, things are considerably more free-market. People post requests for sums between US$1,000 and US$25,000 and the interest rate they desire, and lenders can browse the requests. Lenders can thus specialize in certain areas (such as helping aspiring audiophiles who “just want to buy some really bitchin' speakers”) or devote their funds to specific user groups like firefighters or teachers. They can agree to take on all of a person's loan request or just throw in a couple of hundred at a specific interest rate. Or you micromanage a little less and just select your desired risk level and/or user group and have the loans made automatically.

Another interesting feature of Prosper is that if a loan becomes fully subscribed and lending offers start coming in at lower rates (i.e., there's competition among lenders or somebody new joins the pool who has a soft spot for firefighters who are aspiring audiophiles) the original people who offered, say, US$500 at 14 percent are sent e-mails telling them they'll have to cut their rate to 13.75 percent if they want to stay in.

Unlike eBay, where the on-line meeting ground serves as an introduction service for a transaction that's completed via personal e-mails and the postal system, with Prosper and Zopa both parties' identities remain confidential. You're not putting up the money for Bob Smith; you're financing a loan request based on credit risk, interest rate, and—maybe—a personal fondness for a specific type of request (car loans for single mothers, golf clubs for retirees). Similarly, Bob Smith will never know if his loan came from one generous benefactor who liked his proposal or 200 smaller ones who liked his credit grade.

It seems to me that there are probably a few bucks to be made underwriting loans—the banks seem to believe it's possible. Kurson says that he favours making high-risk loans (higher interest rates, but with a certain percentage of defaults expected), and has kicked in some cash on 230 requests, pulling in almost a 20-percent return, with 10 loans going more than 30 days overdue and being referred to a collection agency.

I must admit that when I read Kurson's Esquire article, the first thing I did was rush to Prosper's Web site to see how I could become a lender. Unfortunately, you have to be a U.S. resident with a Social Security card. Still, maybe this concept will migrate to Canada in the near future—it's so gleamingly brilliant that it could go viral pretty quickly. (Both of these companies are less than two years old.) Of course, I'd expect the chartered banks to fight against it pretty strenuously, but there might not be much they could do in the present regulatory environment, where even grocery-store chains can spawn financial institutions. So all you bored venture capitalists, here's a great idea just lying there waiting to be picked up. Ladies and gentlemen, start your lawyers.