Funding Circle Does Underground Adverts
The three big peer-to-peer lenders; Funding Circle, Ratesetter and Zopa, tend to rely on newspaper and magazine articles, and personal recommendations to spread their message.
So I was surprised to see this advert for Funding Circle on the Underground.
Funding Circle Does Underground Adverts
I don’t think occasional Underground adverts have the kiss of death that is associated with covering large numbers of buses with advertising. Could their bus advertising have anything to do with the falling reputation of Wonga. Or as with films, does blanket advertising of a product, show up the real turkeys?
An Unseen Advantage Of Peer-To-Peer Lenders
There are three main peer-to-peer lenders in the UK; Funding Circle, Ratesetter and Zopa and I have extensive filters and Google alerts that look for any fraudulent activity concerning these companies.
Have I just not found them, but I haven’t seen or heard of anybody trying to get access to any of their web-sites for illegal purposes. I’ve not even heard of anybody trying to hack Wonga either.
On the other hand I’ve had over thirty phishing attempts in the last few weeks to try to get into my non-existent Barclays account.
So are you at an advantage if you keep your savings with a peer-to-peer lender?
Certainly at present you are! But phishing attempts will come, even though I think they would be a very difficult scam to setup and target successfully.
The Changes at Zopa
Zopa has changed over the last few months.
Three investors have indicated to me they don’t like what has happened, with respect to things like Safeguard and the company’s policy on using individual offers.
Two incidentally, have now moved some of their focus to Funding Circle in response to the changes.
You may get a better return on your money with Funding Circle, but to me it is site that you have to tinker with and check your investments too much. It also has some features that grate with my programming standards.
Also, I tend to use Zopa as a safe deposit account, that allows me to withdraw up to about five percent of my money each month without any cost or hassle. I actually reinvest my earnings and repayments, but these are what I would tap into, if I needed them.
I think it is true to say, that depending on your circumstances, you would prefer a particular peer-to-peer lender. Zopa and Funding Circle have probably moved to different corners of the market.
It’s your money so take your pick!
Is Funding Circle Going To Sleep With The Enemy?
There are rumours around the Internet that Funding Circle is going to tie up with Santander. Read a report here in The Telegraph.
For many years ING provided funding to a host of smaller lenders in the UK. Then they changed tack and left these lenders up the creek without a boat, let alone a paddle.
The only possible tie-up that I would possibly do if I was the CEO of Funding Circle is to licence the technology for use in a non-competing market.
I certainly wouldn’t get involved in any direct tie-up in the UK, for a number of reasons. Most of these are detailed in the Telegraph.
But I was part of a small dynamic company taken over by a big US corporation and it just didn’t work. Santander and Funding Circle are so different, I’d only give them a few months before they fell out in a big way.
I hope that if they are talking, that Funding Circle see the light and withdraw.
But the rumours probably haven’t done their business a load of good.
In this article, the banks are accused of being less than co-operative with the peer-to-peer lender; Funding Circle.
Who’d have thought that those respectable banks, would do something like that?
I’m Closing My Funding Circle Account
For similar reasons to why, I’m closing my Ratesetter account, I’ve decided to close my Funding Circle account.
Unfortunately, I’ve found it impossible to login, so I e-mailed them this.
Please can you close my account and return any monies to me.
Unfortiunately, I can’t login, as I’ve forgotten my password and I can’t answer the questions correctly to reset it. When I registered, I couldn’t answer the question about who my best friend at school was, as I didn’t have one.
It actually, is true, but I didn’t really have a best friend at my school, as my best friend, who lived a few doors away, went to a boarding school.
A Clever Funding Route From Huddersfield University
Huddersfield University has teamed up with peer-to-peer lender; Funding Circle to create an interesting route to finance and develop small businesses. It is described in this article. These paragraphs sum up the essence of the scheme.
Known as the Business Lending Partnership, Funding Circle’s recently-announced scheme alongside the University of Huddersfield has set a precedent for commercial and alternative lenders to start providing capital for non-traditional institutions.
Using Funding Circle, the university will lend an initial tranche of £100,000 to small businesses across the UK. The initiative seeks to support SME pioneers of the present and future, with all interest earned by the university’s investments to be put towards student scholarships for the University’s ‘Enterprise Development’ degree. Over the next five years, it is expected that more than 200 students from socially deprived backgrounds will gain access to the course.
Both Funding Circle and the university will also develop a series of seminars and internship opportunities with borrowers to ensure that the upcoming generation of business leaders can gain hands-on experience with flourishing British businesses as part of their degrees.
Obviously, not all partnerships will use the same model, but Huddersfield University and Funding Circle have used a clever model that can be cloned and/or adapted for other partnerships.
It will be interesting to see the nature of partnerships that develop in the next few years.
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.
The Alternative Finance Routes Are Coming
I found this article on a website called Bridging and Commercial.
It talks about how Funding Circle are trying to bridge the gap in the market left by the withdrawal of ING, by paying an increased commission of 4% to intermediaries.
It is an article that should be read.
My reservations about Funding Circle is that they are very small in the overall scheme of things. They have currently lent about fifty million pounds, as against five times that amount by Zopa, which lends to individuals.
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 