Zopa And Funding Circle Get Government Funding
The Daily Telegraph is reporting that Zopa and Funding Circle are going to get tranches of funds to invest from the Government.
I very much applaud this move as although the sums are quite small at ten and twenty million pounds respectively for each, the government’s seal of approval can only help the growth of this form of lending. To put these sums in context, Zopa has lent over a quarter of a billion pounds and currently around thirty million is available to borrowers.
But surely the biggest boost is that with this extra funding, the publicity will drive more credit-worthy borrowers into the arms of Zopa and Funding Circle.
My only worry is a selfish one, that the interest rates available will drop because of the extra funds.
I certainly wouldn’t like to be holding any shares in a traditional bank.
I shall also be watching the return, that I’m getting on my money in Zopa.
Always Say No To A Bank
According to this article in the Telegraph, the banks are being told to cut down on commission-based selling to their customers.
I never buy anything from a bank. If I could find a pure money transfer company to manage my current account, I might move.
Banks should be made to publish anonymously the salary details of all employees, including all of their benefits and commissions in a form that could be downloaded as an Excel spreadsheet.
That would sort the problem out, as millions would analyse the results in great detail! It might even force some banks to withdraw from the market and we could have more coffee shops, bars and restaurants in good quality buildings.
Did My Protest Work?
It is being reported that Starbucks are now going to pay more Corporation Tax.
Since the storm broke, I’ve not used a large chain of coffee shops, although I have popped into Carluccio’s for the odd cappuccino.
I wonder how many other people have adopted a similar boycott?
It’ll be interesting to see the accounts of the chains as they emerge!
On a related point, I was talking to an American a few days ago, and they didn’t like the way Starbucks behaved on the other side of the pond.
English Councils Have Large Reserves
This article on the BBC shocked me. I always get the impression that councils are strapped for cash, but the Audit Commission says that they have £13 billion in reserves.
The councils should take a leaf out of this widower’s book and put it into peer-to-peer lending in their own area. I proposed putting a regional element into something like Zopa here.
They might lose the odd bit, but it would be safer than putting the money in an Icelandic bank.
A Predictable Autumn Statement
Predictable in that it was more of the same, even if you don’t like one or more of bankers, large corporations, benefit claimants, pensioners, unions or drivers. I don’t like at least three!
Some taxes and allowances went up and some went down. Was it ever any different?
We need some radical ideas to get the economy going?
Take these statements which are more or less agreed policy between all the major parties.
1. Banks should lend more to individuals and businesses, so that they purchase capital goods and services.
2. Savers should get a better return on their money.
3. The banks should have more capital reserves.
Point 3 is the elephant in the room, as any money the banks get goes on salaries or to improve their balance sheet rather than more lending.
So let’s leave it out and go to peer-to-peer lending, where borrowers and savers are put in touch by intelligent computer systems.
The Chancellor didn’t take the radical route and help peer-to-peer lending at the expense of the banks. After all if he did, the price of all those Government bank shares would drop. So as they will continue to lose value, wouldn’t it have been better if Gordon Brown had done the prudent thing and put them down, when they went bust?
But then Labour would never have got another vote in Scotland. As it is, Labour doesn’t seem to get many!
Should Starbucks Pay More Tax?
As a High Street company I would prefer that they set up a system like Waitrose has done with Community Matters, where local charities are chosen by customers to benefit from a levy on takings.
After all, Governments have a record of wasting our taxes on things that a proportion of us don’t want. We all have our pet hates and mine is probably the money government wastes on defence and computer projects.
Boris Gives It Straight To The French
Boris Johnson in India has taken the French government to task over their statements on ArcelorMittal. It’s here on Reuters. This is an extract,
The Mayor of London Boris Johnson on Tuesday described France’s Socialist government as left-wing revolutionaries that were driving investors away in a dispute with steelmaker ArcelorMittal.
The Conservative mayor mocked the French government as ‘sans-culottes,’ a radical left-wing class during the French Revolution of 1789, while adding that British capital would welcome business fleeing from France.
The French are going to have to realise that the world has changed and the rest of the world doesn’t owe them a living. Especially, as their policies are driving the best and most creative brains out of France.
Regional Finance
I have a bit of form in this area, as I was a partner in a small finance company in Ipswich, which was setup, when I sold my stake in Artemis. The company lent money to local individuals with good credit ratings for quality products like cars, trucks and various forms of machinery. It was profitable and it was eventually bought up by one of our sources of finance. My partner in the business has continued lending money since, but recently he has had problems obtaining wholesale money at a reasonable price. The withdrawal of ING from this market has not helped and the result is that businesses are having to pay more for leasing contracts.
Locally-based or regional finance is an opportunity for someone to step into the gap. Funding Circle have created what they call a Local Business Lending Partnership with Lancashire County Council. It is a small step in the right general direction.
I’m a great believer in peer-to-peer or social lending for three reasons, having invested around £100,000 of my savings in companies in the area.
- It gives lenders a better return on their savings. I consistently get 4-5% before tax after all charges and bad debts on Zopa.
- It gives borrowers access to affordable loans with very fair terms.
- Because of the way they run their businesses, peer-to-peer lenders have a low bad debt rate, which is much better than those of established banks.
The only downside is that lenders’ money could be at risk. On the other hand, if you use a social lender sensibly, like I believe I have, you can minimise your losses. In four years on Zopa, with tens of thousands invested, I’ve only got a few bad debts that total just over four hundred pounds. Possibly due to Zopa’s collection method, this figure is reducing.
Others have not been so lucky, but then I am by training a control engineer, with extensive experience of modelling financing and lending systems.
So is Funding Circle’s approach of a Local Business Lending Partnership a good one?
It’s an attempt to target money, but then as Dieter Helm has said “Ministers who try to pick winners should remember that losers tend to pick governments.”
Politicians and money are rather a toxic mix. They should stick to enabling good practice by sensible laws and rules.
I know Zopa well, so what does their system have that is good. I mused in this post that Zopa might be a stable system, where borrowers and lenders find a sensible balance between their needs. Nothing I have learned since makes me believe I am wrong. In fact Zopa is in some ways so stable that I hardly ever change the interest rates that I charge.
Zopa too, has very good credit checking, which I know is the key to successful lending businesses. Royal Bank of Scotland appreciate this now.
The Zopa model is also so simple, that the average eight year old would understand it. This simplicity means that anybody can invest and lend money from a few pounds upwards and borrowers only face a thorough, but not particularly onerous checking process, before the computer allocates all the funds.
Because of its computer system, Zopa is infinitely scalable. At the time of writing it has lent about £250,000,000 in seven years and if it were to be lending say ten times more, it would only need to increase staff in the back office.
I suspect too, that a lot of what I’ve said here applies to other social lenders like Funding Circle and Ratesetter. But I have not been investing in those companies for anywhere near like as long!
Zopa is unique in that it doesn’t allow the lender to have any choice in the borrowers they lend to. All lenders can do is choose markets and set rates. The computer then does the allocation, which are then thoroughly checked by a team of expert humans.
So in my view Zopa is the purer and more stable system from a control engineering point of view.
It also requires the least intervention from the lender to run successfully, which probably explains why it is the largest peer-to-peer lender.
Funding Circle may get success with its lending partnership, but I suspect it tends to make administration more difficult and requires intervention from lenders. It’s also open to skewing by politicians, who favour their friends.
So could a regional element be built into Zopa?
I believe it can and Zopa’s model is absolutely the right one to regionalise.
You would not change anything major to the computer system or the way the staff work.
The first thing you would do, is to add a facility which is common in on-line dating and car sale systems. You can type in your post-code and say you’d like to meet someone or find a car within say twenty miles or so. Obviously, a guy in Carlisle doesn’t want to meet a lady in or by a car from Penzance!
But people have strong regional affinities and an investor in say Suffolk, might like most of his money to be lent out there. Especially, as they might get a £50 bonus from Zopa for introducing a borrower. Traditionally, these bonuses get spent on something like a shared meal, so it’s an unusual form of creative cash-back. Imagine how this could percolate through something like a golf or tennis club, or a school common room.
So I would allow lenders to restrict their lending to those that lived within a certain distance.
This would also have a marketing advantage as people would like to think that their savings were helping others where they lived.
But of course, there would be no deterioration to Zopa’s bad debt rate, as the same credit checks would still apply. In fact, this regional element might mean that those with better credit ratings went to Zopa, as they would prefer the profits to stay in their local area, rather than to the City.
So yet again, we see how feedback and control engineering principles can be applied to make a system better.
Zopa’s company model also allows credit checking and other processes from anywhere, as that is what the Internet is for.
So they could move some checking to regional areas, if they wanted, to use local knowledge and promote the company. But this would hardly involve them in vast expenses, as they would just be putting a bum on a different seat.
Other tweaks could also be added, but whatever is done, mustn’t compromise the simplicity of the system.
“Local Business Lending Partnership” Gets Hijacked
Lancashire and Funding Circle have called their partnership a Local Business Lending Partnership.
But type that into Google, even with quotes and you get adverts for Wonga and Lloyds TSB.
Click here to see what you get!
Not what you’re looking for at all!
Lancashire And Funding Circle
Lancashire County Council and Funding Circle have got together to form what they call a Local Business Lending Partnership to lend money to small and medium-sized businesses.
it is reported in The Times today and the story has featured on the BBC this morning.
On the face of it, this seems to be a good idea, but why does the council need to get involved?
The Anonymous Widower 