The Anonymous Widower

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.

August 14, 2013 Posted by | Computing, Finance | , , , , , , | Leave a comment

I’m Closing My Rate Setter Account

I have just sent this e-mail to Rate Setter.

I’ve never really got into Ratesetter, so I’d like to close everything down, or at least withdraw the money that has not been lent.

It’s just that the concept of the site requires a lot of managing and as Zopa now has their Safeguard product, which gives me a reasonable rate and quite a bit of security, I might just as well have the use of the money or give it to charity.

May 5, 2013 Posted by | Finance | , , , , | 1 Comment

Wonga Move Into Credit Card Territory

According to this article from the BBC, Wonga are moving into credit card and web fulfilment territory with their latest service called PayLater.

Although, I’m not a fan of Wonga, it could be a good idea, provided they moderate their interest rates.

Would I like to see someone like Zopa or Ratesetter doing the same? Only of course, if they didn’t relax their credit checks.

After all, for years, with many products and some big purchases like cars, finance has been an integral part of the process.

The trouble with something like Zopa doing this, could be, that if the loan is turned down, then the sale could be lost.

But Wonga’s thinking does show how the banks and credit card companies are getting it in the neck from the new financial innovators.

December 17, 2012 Posted by | Business, Finance | , , , , | Leave a comment

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.

  1. It gives lenders a better return on their savings. I consistently get 4-5% before tax after all charges and bad debts on Zopa.
  2. It gives borrowers access to affordable loans with very fair terms.
  3. 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.

November 17, 2012 Posted by | Business, Finance, World | , , , | 1 Comment

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.

October 14, 2012 Posted by | Finance, News | , , | Leave a comment

Did Betfair Lay Down The Model For Social Lenders?

Zopa, Funding Circle and Ratesetter, think they are unique, but did they just borrow the principle from the betting exchange, Betfair.

In all four, you can play both sides against each other, although the purpose of Betfair is different.

The same principles could also be applied to an energy exchange.  Let’s say a town or an area got together and pooled their energy needs and say they wanted a particular price, which the energy suppliers could then bid for.

I don’t see too much difference.

August 13, 2012 Posted by | Finance | , , , , , , | Leave a comment

Creating A Ratesetter Account

I have just created a Ratesetter account, as I want to see how other peer-to-peer lending sites work.

As a Zopa user for many years, I could be considered biased, but although I got registered quickly, there are some things I liked and didn’t.

E-Mail Address Based Account

All accounts, should be based on e-mail addresses.  They are in Ratesetter.

Passwords

Because of my gammy left hand, I don’t like passwords where case is important, as I often get it wrong, when I use the shift key. Ratesetter  insists on at least one number.

At least though they didn’t use the dreaded Captcha system beloved of so many sites.

Check Questions

They only have one question, which you setup yourself. I’m happy with that.

Addresses

I had no problems here and they only wanted my current one.

Debit Cards and Bank Transfers

Ratesetter allow both methods of transferring money to the account. I prefer the bank transfer.

But I did successfully register my account and transfer £1,000 into the account.

August 13, 2012 Posted by | Finance | , | 5 Comments