Abstract:
A system and method for creating purchase transactions based on a series of previously created loan transactions is provided. The system and method applies to small unorganized groups of neighbors as well as formal trade exchanges or bartering organizations. The system provides the means for subscribing members to create a network of members, called a loan group, by loaning or consigning products and services to a set of members some of whom in turn loan or consign products and services to a third set of members and this “loan-it-forward” process can repeat as many levels as desired creating a network structure. The method of this invention determines when a purchase transaction can occur and adjusts loan units along the paths in the network structure to provide payments (equal to the purchase transaction amount) on each loan along the paths of members connecting the two members involved in the purchase transaction.

Description:
CROSS-REFERENCE TO RELATED APPLICATIONS 
       [0001]    Provisional Application No. 61/398,907 with filing date Jul. 2, 2011 
       STATEMENT REGARDING FEDERALLY SPONSORED RESEARCH OR DEVELOPMENT 
       [0002]    Not Applicable 
       REFERENCE TO SEQUENCE LISTING, A TABLE, OR A COMPUTER PROGRAM LISTING COMPACT DISC APPENDIX 
       [0003]    Not Applicable 
       BACKGROUND OF THE INVENTION 
       [0004]    The invention relates generally to the field of trade and more specifically to a system and method that stores and adjusts a series of members&#39; loans or consignments to facilitate transactions in trade exchanges. 
         [0005]    Trade exchanges (or bartering organizations) operate as commercial organizations who maintain record keeping systems in which each member has a trade account which is debited when purchases occur and credited when sales occur. Trade exchanges often help members leverage their unused capacities and excess inventories. The prior art contains various systems and methods to store, organize, and display information about members in the system and their products and services available or requested for trade. Trade exchanges use typical accounting systems and methods to maintain records of trade debits, credits, and account balances. The following prior art illustrates systems and methods associated with trade systems, most of which are cited because they at least mention loans or resolution of financial debt in the context of electronic exchanges. 
         [0006]    Himmelstein discusses a method of bartering (trading) where a multiplicity of classes of products with allowable trade date ranges are compared to create trade transactions (Electronic bartering system, U.S. Pat. No. 7,680,726). This example illustrates the prior art&#39;s focus on systems and methods that organize groups of products or groups of participants in constructing a trade exchange transaction. Herschkorn discusses a system and method of trading loans in an electronic system where sellers offer loans and buyers submit bids and the system determines partial or full matches. (Bank loan trading system and method, U.S. Pat. No. 6,691,094) This prior art is an example of loans being used as products in trade exchanges. A similar approach where the exchange involves credit defaults is discussed by Jaffrey and Farooq&#39;s in their patent application. (System and method for facilitating exchange of credit default swaps, Patent Application No. 20100125518) 
         [0007]    Chatterjee discusses a system and method of implementing electronic marketplaces that provide financial transaction services to members. This system uses member registration information to determine types of transactions available to participants and provides associated financial transaction services in connection with ongoing transactions involving the participants. (System and method for providing electronic financial transaction services, U.S. Pat. No. 7,698,240) But such financial transactions (even if loans) did not have a direct impact on the exchange of other goods and services in the electronic marketplace in this prior art. 
         [0008]    As for validation, Saunders discusses a system and method for securing a recurrent billing transaction using a marked proxy code that includes a merchant system marker assigned to the merchant and a proxy code assigned to a consumer. The system uses these markers to validate a merchant&#39;s transaction request. (System and method for securing a recurrent billing transaction, U.S. Pat. No. 7,650,314) In particular, that this prior art does not use existing loan or other debt considerations to validate a transaction involving other products and services. 
         [0009]    Postrel discusses a system and method for exchanging reward points previously stored in at least one user reward account stored on an associated reward server computer into a user reward exchange account associated with a trading server computer. In particular, this discussion involves the conversion of one type of unit, the user reward account units, to another, the server reward exchange account. (System for electronic barter, trading and redeeming points accumulated in frequent use reward programs, U.S. Pat. No. 7,624,041) In this prior art, it does discuss a second type of trade unit, but not associated with loan units nor do they create a structure for future trades in the exchange. 
         [0010]    Trust is an important factor in trade exchanges. Moskowitz discusses a system for enhancing trust in transactions, most particularly in remote transactions between transactional parties such as online trade exchanges. Trust is enhanced through a variety of factors including subject matter of the transactions, the supplier of the goods and services, the appropriateness of a pricing structure, security of information exchange, data identification, authentication, and transmission. (Systems, methods and devices for trusted transactions, U.S. Pat. No. 7,159,116) Note in particular the absence of a factor for trusting a potential trade transaction that is related to prior loans existing between the members of the trade exchange. 
         [0011]    As for binding, Walker discusses a method and apparatus for effectuating bilateral buyer-driven commerce. It allows prospective buyers of goods and services to communicate a binding purchase offer globally to potential sellers, for sellers conveniently to search for relevant buyer purchase offers, and for sellers potentially to bind a buyer to a contract based on the buyer&#39;s purchase offer. (Method and apparatus for a commercial network system designed to facilitate buyer-driven conditional purchase offers, U.S. Pat. No. 7,472,074) This prior art illustrates a need for systems and methods in exchanges to bind their members to complete certain transactions. 
         [0012]    Concerning optimization, Iannacci discusses a system and process that provides an on-line, interactive, and fully integrated benefit-driven value exchange and settlement program that monitors, evaluates, and manages economic and personal benefits and executes functions to produce and acquire the maximum or preferred benefit items for users by guiding and automating appropriate payment and settlement actions. (System and method for an automated benefit recognition, acquisition, value exchange, and transaction settlement system using multivariable linear and nonlinear modeling, U.S. Pat. No. 7,318,049) Even though this invention does not relate directly to trade exchanges, it does provide an example of using patterns in data to maximize user value in settling financial transactions 
         [0013]    The prior art does contain loans of trade units to members of an exchange. For example, “A credit line, offered by a growing number of barter exchanges, is basically an extension of barter credits, which allow a business to buy essential items from other network members before selling its own goods into the system. “One of our customers owns a roofing business, which means he can perform his work only during the warm months,” says Dagenais. “But he uses our credit line first during the winter to fix his trucks and get his advertising campaign ready.” . . . If you apply, expect barter companies to check your Dun &amp; Bradstreet credit rating and vendor references, although the application and approval process should be easier than with a bank loan; on credit lines worth more than $10,000, owners may also have to sign personal guarantees. Although you&#39;ll pay interest on purchases you make with your credit line, you&#39;ll be able to pay back interest and principal with bartered goods rather than precious cash” (http://www.inc.com/magazine/19941001/3159.html, downloaded 2010-06-21) Such loans (credit lines), though, originate from the trade exchanges (barter companies) themselves and this practice must be done sparingly so as not to inflate the value of the trade unit. 
         [0014]    We use the term “loan-it-forward” instead of “pay-it-forward”, to emphasize the expectation of having a loan between members of an exchange paid back with interest. We also anticipate the opportunity for members to donate interest to charitable organizations. In the prior art, the pay-it-forward concept is found in a variety of contexts. For example, pay-it-forward is found in multi-level schemes where participants pay some money and recruit others who pay money back, etc. (see for example http://stastup.biz/profiles/blogs/2084667:BlogPost:377131, downloaded 2010-06-21). Multi-level schemes is not the context nor the intention of our invention. 
         [0015]    Loan-it-forward concepts have been used in the prior art to market products and services by passing the same item forward after using it. For example, consider the marketing of Veronica Mars First Season DVDs wherein they “are asking you to try watching three or four episodes to see if you like it and decide if you want to watch the rest of the season,” explained Mark Thompson from Neptune Rising. “After you are done with the set, we are asking you to loan it forward to somebody else and give them an opportunity to see if they might like our show.” (http://www.richardrbecker.com/2008/03/demonstrating-high-touch-veronica-mars.html#uds-search-results, downloaded 2010-06-21) 
         [0016]    Prior art also contains loan-it-forward systems and methods for providing education, even at the international level. For example, the Center for Human Development (a Hindu charity) describes their pay-it-forward program as follows, “Through this model, financial help would be provided to deserving students in the form of a loan. The scheme professes to be different from other loan options available for the students today as it will ultimately be funded by the payback of the original beneficiaries.” http://www.hindu.com/thehindu/edu/2009/11/09/stories/2009110950460800.htm The payback comes from the future productivity of the students in their careers. 
         [0017]    As the above referenced prior art indicates, even though trade exchanges themselves can provide loans to selected members, there is a need for systems and methods that allow members to loan or consign products and services to other members at any time or any amount. There is a need to validate relationships and increase trust in the value of trade transactions and to more accountably reward those who give quality products and services to each other in the system. Trade exchanges often fail if their members do not bind themselves to accepting trade units for products and services, and this is often the result of inflated trade unit values between parties that have little or no prior relationships. Trade exchanges also have a need to allow their members to give loans to other members of other trade exchanges. 
       BRIEF SUMMARY OF THE INVENTION 
       [0018]    The foregoing problems found in the prior art have been successfully overcome by the present invention, which is directed to a system and method that allows members of trade exchanges to use loan units (in addition to trade units) to record individual loans or consignments between members of the trade exchange. The system allows members to freely create loans and consignments to other members. This process can repeat any number of times thereby creating a network of loan unit relationships. When a member requests a product and service from another member in their loan-it-forward down line a trade transaction occurs, and the invention dynamically adjusts the network path (a chain of participants&#39; loans) to accommodate a trade. Significant trust occurs in this new invention because the two new trading partners are linked together by a path of trusted loan relationships. Each link in this path consists of a loan from one member to another based on a pre-existing trusted loan. 
         [0019]    In the preferred embodiment, this invention is an online computer system that stores information in a database describing collections (or networks) of subscribing members who have provided loans to each other and recorded such loans using a loan unit and that provides the means be which the subscribing members can create trade transactions based on network structures of these loan units. These subscribing members can consist of small informal groups of neighbors or members of formal trade exchanges (bartering organizations). The loan unit is not a trade unit as understood in prior art but can coexist with trade unit as used by trade exchanges. A member creates such a network of members, called a loan group, by loaning or consigning products and services to a set of members some of whom in turn loan or consign products and services to a third set of members and this “loan-it-forward” process can repeat as many levels as desired creating a network structure. 
         [0020]    When a purchase transaction occurs, the method of this invention adjusts the loan units along the path in the network structure so as to provide payments (equal to the trade transaction amount) on each loan along paths of members connecting the two members involved in the purchase transaction. This novel concept has significant value in trade exchanges because this system allows members to pay other members&#39; debts even when they are not direct participants in the current purchase transaction. This also significantly increases trust because the value of such loan transactions has already been set by the individual pairs of members. One embodiment of this invention involves a trade exchange who licenses and integrates into their existing trade-exchange applications the systems and methods of this invention. Another embodiment of this invention involves an international organization that extends to multiple trade exchanges the opportunity for their members to subscribe to the loan-it-forward system and conduct business using this novel method with other subscribing members. This creates secure and trusted opportunities to loan-it-forward and then later purchase products and services based on the loan units structures. 
     
    
     
       BRIEF DESCRIPTION OF THE SEVERAL VIEWS OF THE DRAWINGS 
         [0021]    In order that the manner in which the above recited advantages and objects of the invention are obtained, a more particular description of the invention will be rendered by reference to specific embodiments thereof that are illustrated in the appended drawing. Understanding that this drawing depicts only typical embodiments of the invention and is not to be considered to be limiting of its scope, the invention will be described and explained with additional specificity and detail through the use of the accompanying drawings in which: 
           [0022]      FIG. 1  is a system architecture diagram illustrating the system for a preferred embodiment including a multiplicity of trade exchanges whose members subscribe to a centralized loan application. 
           [0023]      FIG. 2  is an architectural diagram describing an example of the loan group data structures found in  FIG. 1  in further detail using network flow terminology. 
           [0024]      FIG. 3  is one implementation of creating loans between members who subscribe to the loan-it-forward application. 
           [0025]      FIG. 4  is one implementation of the method of creating a trade transaction based on loan paths in the loan group data structure. 
       
    
    
     DETAILED DESCRIPTION OF THE INVENTION 
       [0026]    The following invention is described by using a specific example of the system where two separate trade exchange companies integrate their trade applications with a centralized loan application hosted on a server of a third company and where a subset of the members of each trade exchange company has opted to participate in loan groups each of which have associated database records that record the loans between the participants in each group. Using  FIGS. 1-4  and the specific example in this manner to present the invention should not be construed as limiting of its scope. The present invention contemplates systems that use any combination of trade exchanges, loan groups and subscribing members. For example, one trade exchange may license the loan-it-forward trade system and method to integrate it into their own trade application and not commingle there members with other trade exchanges. 
         [0027]    Embodiments of the present invention may comprise a general-purpose computer with any number of basic configurations including a secure mainframe within one company and its subsidiaries, even though the preferred embodiment presented here uses the configuration of industry-standard servers on the Internet. An apparatus implementing the methods of the present invention can also comprise a special purpose computer, hand-held device or other hardware systems and all should be included within its scope. Communications links typically will comprise an Internet connection but anticipates any electronic communication link used to transmit data including private networks and wireless connections. 
         [0028]    More specifically,  FIG. 1  illustrates the system architecture of a general-purpose computer system that contains a computer server  1  that hosts a loan application  2  that stores and retrieves data from a database  3 . Database 3 contains a trade table  16  and a multiplicity of loan group data structures  4   a ,  4   b , and  4   c  that are described in more detail in  FIG. 2 . Loan application  2  communicates through an Internet connection  5  with the trade application  6  residing on computer server  7  of a trade exchange company. The trade application  6  stores and retrieves data from a relational database  8  that contains a multiplicity of member data records  9   a ,  9   b , and  9   c.    
         [0029]    The system allows for a multiplicity of trade applications connected to loan application  2 .  FIG. 1  illustrates this using a second trade application  10  residing on a computer server  11  of another trade exchange company. The trade application  10  stores and retrieves data from a relational database  12  that contains a multiplicity of member data records  13   a ,  13   b , and  13   c . And similar to the first trade application  6 , this second trade application  10  communicates to the loan application  2  via the Internet. 
         [0030]    The loan application  2 , which plays the central role of this embodiment of the system, provides standard computer instructions via a web page to all subscribers currently using the trade application  6  to transfer or enter membership information from the member data records  9   a ,  9   b , and  9   c  into the loan group data structures  4   a ,  4   b , and  4   c  in order to record loan transactions. For example, if the member associated with the member data record  9   c  in the first trade exchange loans his or her services or consigns products to the member associated with the member data record  13   b  in the second trade exchange, then abstract links  14  and  15  represent the transfer of identification data from member data records  9   c  and  13   b , respectively, into loan group data structure  4   a.    
         [0031]      FIG. 2  uses a particular example to illustrate the architecture of a loan group data structure such as  4   a . Using an industry-standard directed-arc network-flow structure, a loan group data structure consists of a set of nodes  21 , 27 , 29 , 33 , 41 , 43 , 45 , 51 , 53 , 57  with their corresponding loan balances  22 , 28 , 30 , 34 , 42 , 44 , 46 , 52 , 54 , 58  connected by a set of directed arcs  25 , 26 , 32 , 38 , 39 , 40 , 49 , 50 , 56  with their corresponding loan amounts  23 , 24 , 31 , 35 , 36 , 37 , 47 , 48 , 55 . Using industry-standard techniques, this directed-arc network-flow structure can be stored in database  3  as an XML string or relational tables that can include additional information associated with the trade exchange member that each node represents. Note in particular that the conservation of flow principle inherent in network flow models applies to each node, namely, the sum of the loan amounts over all incoming arcs plus the loan balance equals the sum of the loan amounts over all outgoing arcs. For example, consider node  33 . The sum of loan amounts  31  of 2200 over all incoming arcs  32  into node  33  plus the loan balance  34  of 1200 equals the sum of the loan amounts  35 ,  36 , and  37  of 500, 900, and 2000 respectfully: 2200+1200=2400=500+900+2000. 
         [0032]      FIG. 3  uses a flow diagram to illustrate one implementation of a method to create a loan transaction. Assume for this discussion that we are creating the loan transaction represented by the directed arc  56  at the bottom of the loan group data structure in  FIG. 2 , so member H (node  51 ) will give a loan or consignment to a new member J (node  57 ) in the loan amount  55  of 700 dollars. Before the loan, the loan balance  52  of node  51  was −2500 corresponding to the loan amount  47  on directed arc  49 . The loan transaction creation process starts in step  61  wherein a user enters into loan application  2  of  FIG. 1  the member ID of the member (node  51 ) who is giving the loan. The execution proceeds to a decision block  62  where the loan application  2  determines if this giving member ID already exists in one of the multiplicity of loan groups  4   a , 4   b ,  4   c . If the giving member ID does not exists, then step  63  creates a new loan group data structure in database  3  and creates the first node  21  in a new loan group data structure that is then used to continue to step  64 ; otherwise execution continues with step  64 . In this example, the loan application  2  finds that member H exists as node  51  in the loan group data structure represented by  FIG. 2 . 
         [0033]    At step  64 , a user enters into loan application  2  the member ID of the member (node  57 ) who is receiving the loan. The execution proceeds to a decision block  65  where the loan application  2  determines if this receiving member ID already exists in the given loan structure. If not, step  66  creates a new node (node  57 ) in the loan group data structure of  FIG. 2  using this receiving member ID and then continues to step  67 . Execution continues with step  67  where the loan application  2  creates a new directed arc  56 . Execution continues sequentially through step  68  where the ID of the giving node  51  is assigned as the beginning node  51  of directed arc  56  and then step  69  where the ID of the receiving node  57  is assigned as the ending node  57  of directed arc  56 . After the user enters the loan amount  55  equal to $700 in step  70 , step  71  adds the loan amount  55  of $700 to the loan balance  52  of node  51  resulting in (−2500+700=−1800). Step  72  finishes the loan creation process by subtracting the loan amount  55  equal to $700 from the loan balance  58  (which is initially set to 0) of node  57  resulting in (0−700=−700). 
         [0034]    The preferred embodiment encourages trade exchanges to use these loan balances  22 , 28 , 30 , 34 , 42 , 44 , 46 , 52 , 54 , 58  as their trade account balances thereby replacing the role of traditional trade units. In such an implementation, the creation of trade units in the trade exchange only occurs when value is realized by chains of such member-to-member loans. If an exchange cannot replace their existing trade units with trade units derived by the system and method of this invention, then they can still implement the invention by creating a new class of (stable and trusted) trade units called, for example, loan units. 
         [0035]      FIG. 4  uses a flow diagram to illustrate one implementation of a method to create a trade transaction. As an example to facilitate this discussion assume that member B associated with node  27  in  FIG. 2  desires to create a trade transaction valued at the amount of $500 to purchase products and services from member H associated with node  51 . The method starts with step  81  where a user enters in a member ID “B” for the buyer associated with node  27  and a member ID “H” for the seller associated with node  51 . Step  82  then determines if a path exists from node  27  to node  51  through a directed-arc network flow structure using industry-standard network structure algorithms. If no such path exists, then step  83  informs the user and returns them back to input step  81 . If a path exists, then the user enters in the trade purchase amount in step  84  which in our example is worth $500. 
         [0036]    The execution continues to step  87  where the system finds the minimum loan amount over all loan amounts  31 ,  36 ,  47  in the path which in this example being 2200, 900, 2500. So the minimum is 900. Since the trade purchase amount is $500 and the minimum of the loan amounts is 900, the loan application  2  of  FIG. 1  would allow this trade to occur. If the propose trade amount had been larger than the minimum loan amounts along the path, step  86  would inform the user that the amount is to large to complete the transaction and return the user to the input step  81  to start over (or another embodiment can return it to step  84  to reenter the amount). If the enter trade amount satisfies this minimum criteria, execution continues with step  88  where the loan application  2  of  FIG. 1  will create a trade record in the trade table  16 . Execution then continues to step  89  where the trade amount ($500) entered in step  84  is subtracted from the buyer&#39;s trade balance  28  resulting in our example of 1400−500=900. Step  90  adds the trade amount ($500) to the seller&#39;s trade balance  52  resulting in our example of −1800+500=−1300. And then to complete the trade transaction, step  91  subtracts the trade amount ($500) from each of the loan amounts  31 ,  36 , and  47  resulting in our example of the new loan amounts of 2200−500=1700, 900−500=400, and 2500−500=2000, respectfully. 
         [0037]    The preferred embodiment allows for the trade exchange to collect an interest payment when the trade transaction occurs and the maximum amount of the potential trade would be further limited by this additional amount. So in this example, if the interest is 10% on the trade transaction of $500, then $550 would be compared to the minimum loan value of $900 and $50 would be debited from the loan amount  52  of −1800 resulting in −1850 and $50 credited to the trade exchange loan account. 
         [0038]    The preferred embodiment also allows for the seller to pay an interest or gratitude payment directly to the buyer after the trade transaction occurs and that such interest or gratitude payment may be donated by the buyer to charitable organizations. 
         [0039]    The preferred embodiment also anticipates the use of industry standard network flow algorithms to handle the occurrence of multiple loan paths from a buyer to a seller. Such algorithms can be used to calculate and display to the user the maximum trade allowable for each other subscribing member. 
         [0040]    Essentially, all the loans along such paths are partially paid back by this novel criterion for determining whether or not a trade can occur. This method results in significant benefits for trade exchanges. It essentially requires that a participant first give a substantial amount to the other participants and encourage them to repeat this loaning process before they can purchase products and services from participants in their own “loan-it-forward” down-line network. Hence the invention restricts members to take only from those members who owe loan units to them vicariously through chains of outstanding loans. This creates a stable type of trade unit called a loan unit for the trade exchange, increased trust among trading partners, and a binding relationship through repayment of loans for multiple members when a trade transaction occurs.