Wonga Apologises To Stella Creasy
Wonga have apologised to Stella Creasy, after one of their employees abused her on Twitter. It’s all here in the Guardian.
I’m always suspicious of Wonga, as I think they’re very slippery. So was the twibel, as they’re now called, a means to get more publicity? After all, they must have known that Stella Creasy wouldn’t be amused.
My Progress With Kiva
I wrote about Kiva, the on-line micro-finance site in this post.
I invested a few hundred dollars to see how the site works.
I’ve now started getting repayments from the loans. This is not surprising in my view, as I used to know someone who organised micro-finance in Malawi and he said repayments were usually made.
So now all the money I’ve had returned has been lent out to others. So my original charity donation has been lent to two different people.
A nice feature of Kiva, is that you can search for people with whom you might have something in common.
I often search for widows, as I know a bit about the loneliness of the predicament. Interestingly, Kiva generally lists both sexes as widows and doesn’t seem to use widower. I think that is good.
One thing about Kiva is that if I recruit a new lender, I get a $25 bonus to lend. This is how they spread the word, but the positive result is more money is lent to the undeveloped world.
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?
ING Pulls Out
I heard this story from a friend, who used to broke deals for the Dutch bank.
The effect is summed up in this paragraph from the article.
Last year, the leasing business provided £22bn to help keep British industry running – many of the deals being done direct between banks and large companies. On that measure, ING Lease accounted for 5% of the market.
However, it specialised in the smaller end of the business – farms and young firms that got in touch via specialist brokers.
It is these customers, wanting essentials such as tractor attachments, computers, desks and commercial vehicles, which will bear the brunt of the loss.
It left lots of my friend’s clients without finance, as he deals very much at the smaller end. Last time, I spoke to him, he was thinking of retiring, so leaving his clients further up the river without a paddle.
I think, it shows that we need to get alternative methods of finance in place. This is Funding Circle territory, but at the moment they are not big enough to replace much of ING’s portfolio.
It also illustrates a rule of my friend, David. Never bank with a bank head-quartered outside of the UK.
What Should We Do About The Ludicrous EU Budget?
These are not my words, but those of David Cameron speaking in Dubai, reported here on the BBC.
If you want to see the details of where all the EU’s money goes look at this article.
My conclusions from the graphs there are that too much goes on the Common Agricultural Policy and Administration. It is surely about time that the European Parliament was changed to only meet in Brussels. But that would annoy the French.
A Chinese View On Peer-To-Peer Lending
I found this article in the South China Morning Post.
It would appear that peer-to-peer lending is taking off in China in a big way. Here’s an extract.
According to an unofficial source, there are an estimated 100 such Chinese lenders in operation, with projected total outstanding loans this year of 18 billion yuan (HK$22 billion)
That sounds a lot to me.
The Two Sides Of The Personal Banking Crisis
We have a personal banking crisis in this country and I suspect many parts of the developed world.
A headline in the FT says that the bill for mis-selling PPI has now passed ten billion pounds. And that only includes direct costs to the banks. What about the indirect costs to all of us, who never went near PPI, but are constantly plagued with all forms of nuisance calls and e-mails. Hopefully after the action of Richard Herman, these calls will stop.
We also have the story on the BBC about basic bank accounts offered to those with bad credit histories. Apparently,more and more banks are dropping these accounts.
So what does a basic bank account do. This
These are simple accounts which allow customers to have their wages, benefits, and cheques paid in.
Customers can gain access to their money from some cash machines, or the Post Office.
Bills can be made by direct debit from the account, but these accounts offer no overdraft facility or access to credit – unlike most standard current accounts.
According to the BBC.
In fact that is not unlike the facilities, I use my Nationwide account for.
Although, I do have a credit card, the ability to get my money from virtually all cash machines, full on-line access and a small authorised overdraft, which I never use.
But I never buy anything from my bank or phone them up.
So the opportunities for making money from personal accounts by retail banks from most of their customers is dropping like a stone.
Especially with investors like myself, who use things like Zopa to hold our savings and surplus cash.
It all sounds like to me, that there is a real gap in the market for a personal bank that has these characteristics.
On-line only.
No expensive High Street branches.
No phone lines, with all queries dealt with on-line.
No cheque books.
A simple savings account.
Small overdrafts.
Cash out from any cash point.
Even some of the new entrants to banking like Metro, Marks and Spencer and Tesco don’t seem to be ditching the physical branches. With all the work I did with a major clearing bank in the 1970s, I know that these contribute significantly to the cost of doing everything.
The only certainty is that banking will go this way and there is going to be a lot more empty spaces on the High Street. I just wonder what is going to fill them. We can only have so many mobile phone and payday loan stores.
Applying Control Engineering Principles To Pensions
Pensions are a nightmare and more rubbish is talked about them than any other financial matter, except possibly credit cards.
I’m in some ways typical, but the size of my pension pot is not typical.
When I worked for Metier, our wonderful accountant, Brian, set me up with a pension that I can live on.
I also have an income from the cash I got from selling the stud.
And when the DWP sorts it out I’ll have my State Pension.
So basically, I have a fixed sum coming in each month, from which I take my living expenses. Which of course varies on a month by month basis.
So at the end of each month I have a current account, which either has a small surplus or perhaps a small deficit. If it’s a surplus, the money goes into my Zopa account and if it’s a deficit, I withdraw a proportion of the payments made in at the first of the month.
So Zopa acts like a deposit account, that pays a reasonable rate of interest. The great thing, is that it costs me nothing to transfer money to and from Zopa.
There is of course a slight risk with Zopa, but I’ve used it long enough to have developed a philosphy that minimises bad debt.
Effectively, I’m using Zopa to damp out the fluctuations in cash flow, just as a control engineer might add damping to a feedback system.
The Anonymous Widower 