The Speed of Lending on Zopa
I have been asked a few times about how long it takes money to be lent out in Zopa. A typical question might be something like “If I invest £1,000, then how long will it take to be lent out to borrowers?”
On Friday, I transferred £1,000 into Zopa and it had all been allocated to borrowers within eighteen hours. Remember that the system is continuous and on-line, so borrowers can probably turn up at all hoursimaginable. All of these contracts and there are about thirty of them are now being processed and they will appear in my account as Lent Out over the next day or so. If you have ever borrowed money or been credit checked, you will know this is a process that can be variable in time. Also some borrowers will be turned down and the money will be available for allocation to another borrower.
So don’t think your money has disappeared, when it is just very slow getting to Lent Out.
I’ll let you know when my thousand is fully lent.
Update on the 3rd April.
I’ve still got £750 being processed before loans are approved. It looks like only a handfull have actually been so. But then we’ve only had one working day so far.
Funding Circle Gets More Backing
Funding Circle is one of Zopa‘s peer-to-peer finance rivals, that concentrates on small businesses. An article in today’s Sunday Times has said that they have just raised an extra £10m of finance.
From my point of view, the most interesting thing in the article is this quote from Neil Rimer of Index Ventures.
Even if the banks were to get their acts together overnight and were suddenly to start lending, they would struggle to compete with Funding Circle. The Internet didn’t exist when the banks set up their infrastructure to deal with small buisinesses.
He doesn’t go as far as I do, but I definitely think that those who hold bank shares need their heads examined.
One of My Zopa Bad Debts Has Gone Missing
Ever since the 3rd of March, I have had 13 bad debts, that have cost me the sum of £413.77. As I have the sum of nearly £ 38,000 invested with well over 2,000 borrowers, that doesn’t seem to be too bad to me.
A strange thing has just happened in that the bad debt count has dropped to 12 with a total of £405.34. I suppose the explanation is simple in that some money has been recovered from a debtor.
I’ll check in the morning to see it is not a figment of my imagination. It’s the morning now and it is still missing, so someone must have paid it.
Paying Credit Cards
I have two credit cards; one with my bank and one with John Lewis. Today I paid the bills and transferred some money to each from my on-line account.
I used the bank’s faster payments system for the John Lewis account and it disappeared from my account immediately, but on past form it’ll take a few days to get to my account there.
The internal transfer hasn’t left my account yet and it hasn’t been credited to the other account, which I suppose is fair.
As I’m in all day. I’ll be updating this post during the day.
Bank Transfers Not Happening
I tried a couple of times make a couple of on-line payments this morning and my son also tried to send me something. But nothing went through.
My only thoughts is that they are setting up so many ISAs, that the system is creaking.
Nationwide Login Problems
I like to login to my account at Nationwide each morning to see if there are any payments or credits, and that what are there are what I expect.
However, since Sunday, I have been unable to login. Each day, I got a message saying that the system would by back by 06:00.
Due to essential maintenance work some services will be unavailable on Tuesday 20/03/2012 between approximately 00:01 and 06:00 – we apologise for any inconvenience this will cause.
It’s now well past that time.
This is just not good enough.
Update on 21st March 2012
I have since found out what the problem was. I use Google Chrome as my default browser and have done for a couple of months, when I had problems in internet Explorer, whilst using WordPress. This behaviour only showed up in this browser and when I used Internet Explorer everything was fine.
This morning Google Chrome is working fine.
I may have found the solution, but how many customers of Nationwide use Google Chrome and don’t have the computer knowledge I do. In fact because of the WordPress problem, I’m a bit suspicious that all browsers don’t sing to the same hymn-sheet. It does mean that web designers must do a lot more testing, so they don’t get bad publicity because of unforseen changes to the design of browsers.
From both the web designers and the customers points of view it’s a nightmare.
The only way to spot this sort of problem early is to test sites continuously and analyse the web logs every day. The Nationwide problem might have been picked up from the latter, by indicating that there were a lot of login failures with Google Chrome.
Stability in Financial Systems
Adverts talk about get the strength of the insurance companies around you and you say that it’s as solid as the Bank of England.
I am a Control Engineer by training and one of the topics that is important is the concept of stability. Since I learned it all in the 1960s, the definitions have increased in scope a lot. I would describe a system as stable, as one that when you displace it, it returns to the same state of rest.
So as an example of a stable system, if you take a ball-bearing or marble in a typical kitchen bowl, it will lie in the bottom. Give it a small push and it will oscillate in and run round the bowl, until what friction there is returns it to the bottom. If however you balance the ball on say a football and give it even the tiniest push it will run off the edge. That is an unstable system.
In everything we do, we always should deal with stable systems.
So let’s look now at a small savings bank with a 100 branches or so.
Rumours are circulating that the bank has made a silly investment on say the 15:30 at Cheltenham and the horse fell at the third fence. Well, not really! But a banking equivalent!
So savers start to panic, as for many, it is the only savings they have. And when they panic, they withdraw their funds and put them under the nearest mattress. Or at least a metaphorical one!
So the problem goes round in circles, from more panic and withdrawals, until the bank has nothing left to pay out and goes bust. We’ve all seen runs like this on banks and hopefully we don’t want to see any more.
So are there any stable financial systems?
Current, deposit and savings accounts in reputable UK banks and building societies, could probably be considered stable up to a government-guaranteed limit of I think £85,000. It’s all laid out here. but then is it worth it for an interest rate of about 3%?
I have a strong feeling that Zopa, the peer-to-peer lender, is also a stable system. Other companies of the same type may well be too! but I am not as familiar with them as I am with Zopa.
Let’s look at an adverse event, that might affect Zopa.
Suppose another peer-to-peer lender gets involved in a mis-selling scandal or suffers a run because of some very bad publicity.
Let’s say this causes a lot of possible borrowers to look elsewhere. Now as demand has dropped, lenders, who are still keen to lend money, will drop their rates to account for the new situation. And then in turn these lower rates will entice more borrowers, thus restoring the system to where it started.
What actually helps the system become stable is that each lender has control of their own little feedback loop and as there are thousands of lenders, the system will adjust very quickly.
In a bank say, there will be one guy taking the decisions and they have a high chance of making a wrong one. All you need for a stable system, is for the average in something like Zopa to get it right. As Zopa uses a computer algorithm, every decision is taken according to the same rules.
You can look at other scenarios with Zopa and I haven’t found one yet, that doesn’t return to a stable position.
This stability could be your guarantee of a safer investment. I haven’t obviously got access to Zopa’s full data, but just like water finds its own level, a balance is probably struck between lenders and borrowers.
An Excellent Comment on Banking
My Google Alert for Zopa found this today by Richard Heller on a web site called politics.co.uk. I particularly liked this bit, which is the author’s idea.
The banks should be compelled to offer all their customers a facility called a good neighbour account. The customer would receive a guarantee that all the funds from such an account which are available for investment by the bank would be lent exclusively to local people and local small and medium-sized businesses. They would not be lent to foreign dictators or racketeers and they would not be used to speculate in fantasy financial products which their bank cannot value or even understand.
The bank in question would not have to track its use of every single such account. But it would have to publish accounts to show that all the available aggregate funds in such accounts had at least been matched by aggregate local lending to individuals and qualifying businesses. There seems to be a market for this kind of lending, as witnessed by the recent growth of peer-to-peer financial institutions. Britain’s largest such company, Zopa, had its best-ever month in January. But no one has yet tried to bring the concept into a current account.
If demand for good neighbour accounts really took off, it could force the banks to revive the old model of Captain Mainwaring banking. The hero of Dad’s Army received money from local people and businesses in Walmington-on-Sea. He kept some of this in cash or at call. He lent the rest to other local people and businesses in Walmington-on-Sea. Captain Mainwaring, and others like him, helped Britain to finance the huge demands of the Second World War and then to finance a generation of recovery and growth. All this was achieved with the minimum of government regulation or support.
In contrast with the Mainwaring era, too many of Britain’s modern banks have been run by Private Walker, the spiv, or worse still by Private Pike, the stupid boy.
He mentions Zopa as nearest to this ideal of banking, which certainly our parents would have recognised.
Zopa of course has paid me a lot more in interest, than ever I would have got from a reputable bank.
The Reliability of Zopa
Every morning I check the status of my Zopa and normal bank accounts.
Zopa was fine today, but my bank account was inaccessible for routine maintenance from midnight yesterday until eight this morning.
It got me thinking that I don’t think in the over four years, I have used Zopa, I’ve never not been able to access the system.
To be fair though, I have hit a couple of bugs in the past, which have resulted in say the system hanging until I have logged back in, but I certainly haven’t had a problem in the last couple of years, when my use of the system has been heaviest.
So if you worry about Zopa’s reliability, I’d say it’s probably up there with the best financial institutions.
On the related subject of fraud on Zopa, I found this article on the web. The writer makes a lot of sound points.
Is Now The Time To Invest In Zopa?
I ask the question as I was at Zopa‘s seventh birthday party and some of their people said, they needed more lenders.
If that had been said by many, you’d have smelt a rat, but I have been feeling for some time, that the value of loans wanted has been growing in size compared to the amount of money on offer.
So I have just been looking at the figures in my Excel spreadsheet that I use to track the company. In January 2011, the ratio of money offered across all markets to that demanded was 4.74. In February 2001, the ratio was 2.78. By comparison in January and February this year the two figures are 1.79 and 1.35. So the amount of money on offer has dropped with respect to demand over the last twelve months.
The drop is totally due to the rise in demand. The average demand in January 2012 was £12.19m, as against to £5.46m twelve months ago. This is a rise of 123%, whereas the money on offer has actually fallen. This could be for any number of reasons, but my guess is that because of the recession, more people are withdrawing repayments and interest, rather than reinvesting them.
So it would appear that Zopa has a bit of a funding gap for new loans.
Also. on the positive side the interest rates returned to lenders have also stood up well and if you take the A* market, this has hovered around the 7% mark since January 2011.
What is interesting and might frighten some investors is that there are occasional monthly fluctuations in the figures. For instance in November and December 2011, rates dropped, but had bounced back by the turn of the year. This probably explained by a slight lack of demand and an increase in money offered. Could savvy investors be putting their Christmas bonus in a safe place?
If I look at my bad debts over the last year, they have gone up by about £80 and 10 contracts. As I limit my exposure on any contract to £50, it is unlikely I’ll get any big hits of a hundred or so, I got in the early days.
So what are the rules for investing?
- Start slow, with investing something you could totally afford to use. I recommend a hundred pounds or so, until you have fully learned how to use the system.
- Concentrate on the two most creditworthy markets; A* and A. The rates you will get aren’t as high as in other markets, but they are less risky. I have a small proportion of my money in the Y or youth market, where 5 contracts have gone bad. But then 6 have in the A market, although these are obviously out of a lot more contracts.
- Set a maximum lending limit for each customer of £50.
- Check your account daily to make sure that the rates you are offering are in the zone or the Zone of Probable Agreement as Zopa calls it. If your rate is too high, no-one will borrow from you and if it’s too low, you might get less creditworthy customers.
- Join the forums on the site, to learn how others think and act.
- Only when you are happy with the system and can trust yourself, do you add larger sums of money to your lending pot!
The Anonymous Widower 