The Anonymous Widower

Her Majesty’s Daily Telegraph Supports Zopa

It’s all in this article here. What will Disgusted of Tunbridge Wells say, as he’s been with NatWorst since he qualified as a solicitor? The article says this about saving and borrowing.

While competition in the current account sector remains stifled, there has been innovation in the savings and loans market, much of it spearheaded by new technology. Zopa, and other peer-to-peer lenders, are prime examples. This company, which launched in 2005, puts those who have money to lend in direct contact with people who need to borrow, effectively cutting out the banks altogether.

Although Zopa takes a fee for arranging this service, the fact that it doesn’t hold the money itself, so doesn’t need to build extensive reserves to cover bad debts, means the rates on offer are far more attractive to consumers. For example, over the past year lenders had earned around 5.5pc on their money, and this is after charges and defaults have been taken into account. Given that the average savings account pays less than 1pc, it is not hard to see why such sites have proved attractive. For those borrowing money, the interest rate is typically a fifth lower than with a high street bank, although most peer-to-peer sites do have strict lending criteria, which means that if you have been turned down by a high street bank you won’t necessarily be able to borrow money through one of these sites. These criteria mean that, to date, the default rate is just 0.5pc.

Zopa may be the biggest peer-to-peer lender by some margin (it has now arranged loans worth £212m) but it is facing competition from RateSetter (which also provides a “default fund” to help cover lenders’ losses) and Funding Circle, which arranges loans for small businesses.

I only think that the peer-to-peer lenders have one serious problem. And that is that politicians bring in banking legislation, that effectively stops peer-to-peer lending in its tracks. However the banks haven’t really shown any good reason why they should be protected from upstarts.

July 2, 2012 - Posted by AnonW | Finance | Banks, Zopa