And Now Savings Rates Go Negative!
The FT is now reporting that Credit Suisse is charging savers to keep their money with the bank.
I suppose we’re not there yet, but it seems rates are still going down.
Payday Loans To Be Controlled
I feel that pay-day and short-term loan companies like Wonga are not the best of ideas. They’re not good for customers as their interest rates are just totally out of line and I think that their business model will come a cropper, as I outlined here.
The government has stated that the new Financial Conduct Authority will have the power to impose a limit on interest rates, as outlined in this article.
It sounds fine in practice, but what will happen to existing loans? And who will lend to those, who use the payday loan system?
It will also effectively kill off all these companies, so they’ll be more unemployed.
And how many criminals and thugs will move into the loan-sharking business?
So all in all, with the proposed alcohol price legislation, it’s been a very good day for criminals.
LloydsTSB Move Customers Without Their Permission
I choose the organisation I bank with, not politicians or bloated bureaucrats from Brussels. So LloydsTSB is totally out of order to move customers to a new bank as reported here.
I suspect a good proportion of those moved will create a stink. UKIP must be rubbing its hands with glee.
You might also argue, that you have few rights when your bank is taken over by another. I used to bank with the Woolwich, which was taken over by Barclays, who I don’t care for. So I moved to Nationwide.
On the subject of Barclays, I used to work with a guy, who had a T-shirt complete with the Basrclay’s eagle, that said “Bank With Warclays”
Greece’s Final Bailout?
I don’t expect so!
But they got one yesterday, as the BBC reports.
Will we ever sort Greece out?
In some ways all we’re doing with Greece, is like giving an alcoholic a bottle of Scotch a day.
Until the Greeks change their habits and accept their lifestyle will have to change, we’ll have to keep bailing them out.
In some ways, the key to a country’s future is its education system. According to this report on the BBC, the UK system ranks sixth in the world. We could obviously do better, but on looking at the full table, Greece is ranked 34.
Zopa Hits A Quarter Of A Billion
Zopa are reporting on their web site, that they have now lent out over a quarter of a billion pounds. That may seem a lot of money, but consider that ING have pulled four times that amount out of lending in the UK in this year alone. But every little helps.
You can make an estimate of Zopa’s income, by starting with one per cent charged on all loans. So that looks like £2,500,000. And to that you can add about a £100 for each successful loan.
But this is probably a lot less than Barclays or another big bank, would make by lending a quarter of a billion.
So possibly Zopa is really only an irritant in the hide of the big banks.
On the other hand, Zopa is a company that lives without the cost structure that any bank feels it must have.
So if they ignore Zopa, the banks will live to regret it. But they won’t live very long in their current bloated and top-heavy forms.
The reason is simple. Zopa’s financial model appeals to both lenders and borrowers and is very simple. So all the discontent, that many feel about the banks, has found a home.
My only worry about Zopa is that politicians legislate against social lending to protect their shareholdings in LloydsTSB and RBS.
George Osborne Hands His Successor A Poison Pill
I think that the appointment of Mark Carney to the Governorship of the Bank of England is a good one. I think he’s got the right experience and of course Canada has a much better-sorted banking industry than the United States, the United Kingdom and most of Europe.
So a good helping of Canadian experience can’t but help.
But say in 2016 or whenever the election is held, Labour should win, he would be a difficult thorn in the side of any Labour Chancellor.
An Acceptable Face Of Credit?
I was ion a Northern line train a few days ago, when I saw an American Express advert for their new credit card. I haven’t got a picture, but the APR for the card was prominently displayed.
Surely all adverts for credit cards and loans must state the APR prominently.
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.
The Anonymous Widower 