Ivan Massow Joins Peer-to-Peer Lending
Peer-to-peer lending is growing fast, with new companies starting up seemingly every week.
Now entrepreneur, Ivan Massow has joined the party with a company called Massow’s Angels.
This was reported in the Independent yesterday, under a title of How Peers Can Solve Borrowing Headaches.
This is part of the report.
Funding Circle recently reported that its customers invested £6.1m in the first two months of this year and the total amount saved and borrowed at Zopa, the UK’s first peer-to-peer website, passed the £200m mark last week. Such growth prompted Andy Haldane, the head of policy at the Bank of England, to say that such peer-to-peer lenders could ultimately replace high street banks.
As if the banks hadn’t got enough problems.
Note that the Indie talks about the Peer-to-Peer Finance Association, which is a trade body created to ensure standards in the industry.
I have lent money through Zopa for several years now and get a reasonable return. In some ways though, my guarantee is in the figures, that I track every day in a spreadsheet and the fact that the company is totally open about the processes it uses. The processes must work, as at the end of May 2011, I’d earned 6 % since the start of that year. The figure is now 9.3 % for 2012, with ten days to go of the month of May.
Breaking The 9 % Barrier
This morning, I found that my investment in Zopa has now paid 9 % since the start of the year. The actual figure is 9.04 %, but of course this is before tax, although it does include bad debts and all charges.
I think this is because a lot of older loans from 2009 and 2010 have now been fully paid and these have been replaced with ones that have a higher interest rate from the past year or so.
I think too, that good, high quality borrowers are looking at Zopa rather than the banks, which are much more expensive and have onerous terms and conditions.
It may be too, that Zopa are getting their checks better. Bad debts from various years are as follows 2008 (3), 2009(5), 2010(5). 2008 is probably low, as most loans from that year are now paid up.
Rules for Zopa – May 2012
I did write a set of rules for Zopa investors or lenders some time ago, but my thoughts have changed since then.
Joining Up
The first set of rules are concerned with joining up.
1. Don’t join up to Zopa without reading all you can find out about the system and how it works. There is a forum on the site, where you can ask questions to borrowers and lenders. Search the Internet for any references to Zopa. That is easy as the word, Zopa, doesn’t occur much outside of reference to the company.
2. When you are certain you want to join, always get invited by a member. That way, if you invest more than £2,000, they will get a bonus of upwards of £50, which traditionally,they will share with you on say a meal!
Getting Started
The next set of rules are concerned with getting started with lending money.
1. Choose a sum of money that you would like to experiment with. Obviously choose a sum that if you really muck it up, you can afford to lose. I would suggest a sum below £500 initially so you can get a feel for the system. I did make a mistake in that I started too high and got a couple of bad contracts because in my impatience to get the money lent out, I set the parameters wrong.
2. Choose the markets you want to lend into. I started with A* and A, and later I added the B market to them. I ignored the C and Y markets as I thought they were too risky. Do all your lending in one offer, as this will mean, that if say there is a shortage of punters in the A market, but plenty in A*, the money will get lent out.
3. When you have chosen the markets adjust the interest rates you want to charge in these markets. I have found that the best thing to do is to set the rate, one notch( or 0.1%) below the level where you are told it is “Too High”. Note that the lower you set the rate the faster you will lend out the money, but this lower rate also brings in more dodgy borrowers.
4. Set the maximum amount you want to lend to individual borrowers to something like £50. Setting it higher will mean you lend out the money quicker, but it will increase your risk. Looking at it simply, if you lend out £1,000 in 10 lots of £100, if one goes bad, you will lose £100, but if you lend it in 20 lots of £50 and one goes bad, you only lose £50. It’s not quite as simple as that, but it does show you the pitfalls of lending in too big chunks.
As money gets lent out, you will see how changing the rate and maximum amount you lend will change the speed with which money is lent out.
Daily Maintenance
I look at my account and do the following every day.
1. Withdraw any money I need from accumulated interest and early repayments, if required.
2. The balance of this money is then reinvested.
3. The interest rates I charge are set to my desired level of one notch below the “Too High” level.
4. I also put all of my important values in an Excel spreadsheet.
Obviously not everybody has time to look at their accounts every day, but make sure you do it regularly. There is nothing worse to login and find that you have a lot of money sitting there doing nothing. You might as well have it in ten pound notes under the bed!
A Long Term Strategy
Most borrowers set their repayment day to either the first of the month or somewhere close to the end, which probably reflects when people get paid. I have lent out 3130 loans of which 38.4 % were on the first of the month and 8.2 % on the next most numerous day, which is the 28th.
I have now developed a long term strategy, where on or about the first of the month, I withdraw enough to pay my monthly bills to my current account. If say, at the mid-point of the month, I have more in my current account than I need, the excess is returned to Zopa.
Peer-to-Peer Lending; An Assessment of Returns
This article from This Is Money makes an attempt to analyse the returns from peer-to-peer or social lending, as it is increasingly being called.
The Zopa Return Rate Is Up
The Zopa rate so far this year has been 7.4 % before tax, including all costs and bad debts. This time last year the rate was 5.98 %
From my figures, it looks like they are short of borrowers. Have the banks finally got their act together or is it that the economy is turning?
It could also be that the bad publicity of payday loans is rubbing off! Their only connection is that they have a snappy name and they give loans, but they are a peer-to-peer lender, not a payday loan company.
The Bank Holiday is Not Good for Zopa Lenders
I’ve just looked at my Zopa statistics over the Bank Holiday weekend and the amount of money requested by borrowers has dropped by nearly 20% since Thursday. A similar thing happened last year, but in the last part of the Bank Holiday week borrowers returned to finance those cars and other goods they’d seen over the weekend.
Lenders seem to have kept up their funds in Zopa.
So perhaps now might be a good time to borrow from Zopa, as there is plenty of funds available.
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.
The Anonymous Widower 