A new(-ish) organization based in the UK called Zopa is allowing people to borrow and lend money from each other, entirely sidestepping banks. Because banks have huge overheads and are fundamentally in business to make money on your money, cutting them out all together allows social lending to give both lenders and borrowers better rates by eliminating the middle man and placing all transactions in an open marketplace, rather than behind closed doors.
The transparent system allows for both the lenders to see where their money is going and for borrowers to see where their money is coming from.
To ensure all their transactions are reliable, they have implemented a fairly simple and logical system:
- We look at the credit scores of people looking to borrow and work out whether they’re an A*-, A-, B- or C-rated borrower. If they’re none of these, then Zopa’s not for them.
- Lenders make lending offers – ‘I’d like to lend this much to A-rated borrowers for this long and at this rate.’
- Borrowers size up the rates offered to them, and snap up the ones they like the look of. If they don’t like the rates today, they can come back tomorrow to see if things have changed.
- To reduce any risk, Zopa lenders only lend small chunks to individual borrowers. A lender lending £500 or more would have their money spread across at least 50 borrowers.
The average return on all money lent to date is 6.75% pa, and some lenders are earning up to 14% pa (figures before tax, but after bad debt and fee).
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Zopa launched in the UK over 2 years ago, and has been growing rapidly ever since. Lots of coverage on the major media channels – BBC, Channel4 some huge radio slots.
It’s even be copied in at least three countries: prosper in the US, Boober in the Netherlands, and smava in Germany. What greater compliment?
May 8th, 2007 at 6:03 am
Declaration of bias straight off – I work for Zopa in the UK.
We’ve been in business since March 2005 and have attracted 150,000 members since launch. Millions of pounds have been exchanged between our members and we’ll be launching in the US (and other countries) very shortly.
The future looks very rosy!
Anyone interested in finding out more can hop onto our discussion boards (http://talk.zopa.com) and talk to some of our many members.
Happy lending!
May 8th, 2007 at 9:54 am
The only good news about the credit crunch is that its increasing the rates available to lenders on Zopa. For instance, see this article:
http://monevator.com/2008/03/27/are-rising-zopa-interest-rates-an-opportunity-or-a-time-bomb/
Of course as that article says, high rates are only good if the bad debts on Zopa don’t increase if we go into recession or similar. Will be interesting to see!
March 26th, 2008 at 10:02 pm