How Good Are The Companies You Deal with?
I found this on a financial forum, but it applies in so many fields. The guy is talking about where he invests his hard-earned money.
One criteria for me was to Google Maps the address of each company (a crazy idea maybe but try it). put the yellow man on and walk past the firm
Is it a big corporate office or is it above a pizza take away (as one is).
Whilst offices might not mean a lot (Equitable Life,Alba,Northern Rock,Icelandic banks etc)
it is one yardstickI aren’t giving my money to a firm that is not filthy rich.
I’ve tried it with a few people I deal with in various areas. In one case the results surprised me.
Getting A Loan Of £5,000 Or Less
I don’t need to borrow money, but I do have a trap setup to make sure that I get information about Zopa and the other peer-to-peer lenders, as obviously I want to put my money in the best places.
I found this article, entitled.
Money Insider: Want a loan of £5,000 or less? Shop around,
In yesterday’s Independent. The article has some interesting things to say about borrowing money and this in particular about Zopa and Ratesetter, two of the peer-to-peer lenders.
Zopa, the first peer-to-peer lender in the UK, is now in its eighth year and RateSetter, one of the more recent lenders in the peer-to-peer market, both offer some of the best value deals at 9.5 per cent APR and 9.7 per cent APR respectively for a £3,000 loan over three years. Just because you’re not familiar with the names doesn’t mean you should discount them — the peer-to-peer market has quickly established itself as a credible alternative to the big banks — and the interest rates are much better than you’ll find on the high street. Zopa has already lent more than £230m and RateSetter has advanced more than £36m to personal customers.
It also highlights another prudent way to borrow from MBNA.
Another option is the Rate for Life card from MBNA. Although not strictly a personal loan, there’s nothing to stop you using this long-term fixed-rate credit card in the same way you would as a loan. If you transfer your balance to the card and set up a monthly standing order for your current account, it works exactly the same as a personal loan.
All of this adds up to the fact, that the banks are under pressure to maintain their traditional place in the financial field. The second paragraph I’ve highlighted illustrates this, in that conventional wisdom says that borrowing on a credit card is an expensive business and should avoided at all costs. If I’d heard this in the pub and not read it in a respected newspaper, I wouldn’t have believed it.
But as in all things these days, the rule of innovation applies; innovate or die. The banks do little of the former and are flirting with the latter.
Zopa’s Bad Debts
I watch the bad debts I accumulate on Zopa very carefully.
At the end of 2011, I had 11 bad contracts, who owed me a total of 408.24 on a sum invested of about £40,000. That’s just under one percent.
Not quite a year later, I have 17 bad contracts, owing £428.39. But my book has grown to just under £90,000. That’s now less than half of one percent.
I do suspect this reduction is due to Zopa’s checking of clients getting better as the year’s roll on. In fact, of the 17 contracts in default, 3 date from 2008, 8 from 2009, 6 from 2010 and none from the last two years.
But also two of my older bad debts have been paid off. Does this mean that Zopa has a good collection system or do people want to protect their credit ratings? It could be a bit of both. Sadly someone could have died and probate has come through.
Would You Buy A Bank Branch?
You’re a very rich man and you are the CEO of a bank that you feel is reputable, so would you buy one bank branch let alone 316 as Santander tried to do from RBS, as is reported here?
I think the answer is no. Three hundred and sixteen times no!
They would have been transferring 1,800,000 customers to Santander. I used to have my account at the Woolwich Building Society and when it was taken over by Barclays, I didn’t feel that I wanted to bank there, so I moved to Nationwide, where I bank on-line.
So how many of these nearly two million accounts will move somewhere else, like one of the new banks being started by such as Tesco or Marks and Spencer?
I’m not affected, but I choose which bank I’m with! Not some faceless man in Spain!
I wonder also how many people adhere to one of my friend David’s rules of banking, which is to bank with a bank headquartered in the UK and preferably England.
I think too, that five thousand staff will be transferred with the branches and the accounts too. How many of the good ones will jump ship and join someone else.
But these days with more and more people banking sans branch, like I do, surely the best thing to do would be to convert these 316 branches into places of hospitality?
They could perhaps be converted into burlesque bars , offering good food and drink, with a couple of cash machines to emphasise their heritage. It would certainly do wonders for the image of bankers. They wouldn’t even have to change the signage, if they called them Royal Burlesque Shows.
Would You Disclose Your Name On Zopa?
Or any other financial site, that gave loans?
Zopa allows me to see who I have lent money to, their payment history and a few other details. Normally, the person is only identified by a code name. So you could lend to someone called MickeyMouse or Graham171.
In two cases though, I’ve been able to identify the borrower. One was actually someone, that I knew and the other is a reputable professional living and working in London.
Both incidentally, have had immaculate payment records, so they have nothing to hide.
But I do find it strange that someone would join a financial site and make it possible to identify them.
NatWorst Opens The Door To The Fraudsters
Natwest have brought in a system called Get Cash based on a mobile phone app. But according to this on the BBC’s web site, it’s all started to backfire.
It looks to me that the Get Cash app is just too easy a target for fraudsters and it appears to me as a humble programmer and system designer, that they used programmers and designers, who didn’t understand the criminal mind.
If my bank offers me a mobile phone app to do my banking or use a credit card, the answer is no, no a thousand times no!
Incidentally, the computer that does my banking, never leaves my house and sits behind a door with a powerful lock on it.
I usually only draw out cash from a small number of cash machines fairly close to my house or at the Angel.
Some Financial Ramblings About Wonga
I’ve never liked Wonga, ever since I saw a presentation of it at an Internet awards ceremony a few years ago.
There is an article in the Sunday Times today, which gives a few figures about the company. It apparently lent £375m last year and has made a debt provision of more than £66m. Or about 17.6 %.
That is a high figure and is totally out of line with good, well-run and profitable finance companies. I used to part-own one and our bad debt ratio was if I remember correctly about five percent. Which was well below the industry average at the time.
I also have my own figures from Zopa, where I invest money to lend to third parties. My bad debt to invested money ratio has never exceeded one percent. But I do have a fairly conservative lending policy.
I have done extensive financial modelling in the area of finance companies and like to think, I know why well-run ones make a lot of money.
The first rule is to only lend to those with good credit ratings. Here, Zopa and Wonga are two very different animals.
Zopa creams the top of the market, acts like a normal finance company to borrowers and cuts its investors in on the deal. In fact, I wonder how many Zopa borrowers think of Zopa as a cheap source of finance with excellent terms and conditions?
Wonga on the other hand is a bottom feeder, targeting those with problems and might well look like a loan shark to many possible customers.
Other lenders like say Nationwide, Lloyds and the other reputable banks and finance companies are closer to Zopa, but probably not as much as they’d like to be.
The second rule is making sure that borrowers keep their payments up. Wonga don’t seem to be doing this judging by the bad debt ratio of 17.6 %, whereas Zopa is probably much better than the average for a reputable bank or finance company,judging by my experience. My ex-partner in the finance company feels that the Zopa figures are better than any he’s seen.
Wonga’s model is different to any other finance company. Banks and in effect, Zopa, get their money back over a period of time, typically measured in months or years. Whereas Wonga, probably gets it back in days, so the money goes round and round in the course of a year. Or it should do!
You might consider that Wonga is a money rental company, rather than a lender. Even if it is one of last resort.
At present the Wonga model seems to be working, with a profit of about £26 on each transaction, of which the average size is £150. The Sunday Times doesn’t give the average length of each loan. Estimating what a typical reputable company might make on each deal, it looks like Wonga are really making quite a bit more money!
But there are two sides to every financial equation; money in and money out.
We ran our finance company on a very lean basis and if you are reputable and you get the business you need to grow the business as you want, then you don’t really need to spend too much money on things like advertising or promotion, as your customers do that for you. Even the banks don’t spend much on promoting their loan services! But they are uniquely placed to sell their loans with a big branch network.
Wonga are really spending it, judging by the adverts and the sponsorship you see. Recently, it has been announced that they are pursuing a sponsorship deal at Newcastle United. Remember that the world of personal finance is littered with companies that thought they had a better model, but in fact didn’t. I’m old enough to have seen quite a few!
Wonga’s financial model seems to rely on putting your name in front of as many mugs as you can to carry out its bottom feeding.
If you compare Wonga with any reputable finance company, it would be unlikely that the latter would fall into trouble over its borrowers, as it would probably treat them fairly and respectfully. Using Zopa as an example, it only lends to those with good credit ratings, makes no charges to those, who don’t get loans and generally charges a lower interest rate.
Wonga too, has already aroused the ire of some politicians like Stella Creasy over its policies and high interest rates. Politicians it should be said, need easy targets, like bankers with huge bonuses and payday lenders. Wonga in particular is a very easy target.
My financial modelling experience though does lead me to an important conclusion.
Wonga’s model will only generate profits, whilst there is a large pool of willing borrowers. At present there are obviously enough, but as more and more suffer because of defaulting to Wonga, will the general public get the message that has been preached by the papers, like the Sun here and learn to use alternative sources of credit, like credit unions. Or in fact will they, just manage their finances better?
I gave the example of the Sun, as it is more likely to be the paper of choice of a possible Wonga borrower. On the other hand, there are some nice pieces about Wonga in the Guardian, the Telegraph, the Mail and the Mirror It is also interesting to read some of the comments on a report of the Newcastle United sponsorship deal in the Newcastle Journal.
There is another big difference between the model Zopa and other reputable banks and finance companies use and that of Wonga. The former rely heavily on personal recommendations from satisfied customers to get business. Wonga would probably like to too, but with their high admitted default rate, the number of recommendations would be lower, especially if you’re being chased by them for the money.
So this all makes me think that at some time, Wonga will be unable to sustain the current growth. Especially, if legislation to limit their interest rates of over two thousand percent was passed by parliament.
I wonder whether they have already found the limit to growth, given the Newcastle United deal and the fact that the annoying bus adverts in London have reappeared in large numbers. After all what is a shirt sponsorship deal, but getting your company’s name in thousands of places on the street. If you are selling a quality product like say Emirates, Samsung, Standard Chartered or Waitrose, it doesn’t probably matter having thousands of football fans promoting your brand, but if you’re a payday lender, it might just be counter-productive It would be very informative to read a learned paper on the effectiveness of shirt sponsorship.
Now Lloyds And The Co-op Drop Us In It
Captain Mainwaring would not have been amused, as yesterday Lloyds and the Co-op seem to have had system errors, or as I prefer to call them programming bugs, in their computers. It’s here on the BBC.
It may have been unrelated but one of my credit cards wouldn’t work on-line yesterday and they asked me to phone them. They said they were just rebooting the computers, and it should be OK in a couple of hours. Do we reboot computers, as we generally give them a good kicking first?
How Zopa Beats The Stock Market
This article was trawled out of the Internet by Google. It’s well worth a detailed read.
The Downside of PFI
I found this little story tucked away on the Internet. In 1998, London Underground entered into a PFI contract with a consortium called Powerlink to provide power to the system. Although, they have no issues with the consortium, London Underground have decided to exercise a break clause, that should save them £220m over the thirty year life of the contract.
Sounds like good and sensible business to me, unless you’re a member of the consortium.
Supposedly, New Buses for London cost about £330,000 each. If you divide this into £220m, you get approximately 667 buses.
Didn’t Transport for London just buy 600 New Buses for London?
It makes you think!
The Anonymous Widower 