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Social lending the next Web 2.0 phenomenon – Part I
- Part 1 – Overview of Social Lending
- Part 2 – Review of Zopa and Prosper
- Part 3 – Why of Social Lending
The Social Futures Observatory and Zopa released a study entitled, “Social lending the next Web 2.0 phenomenon.” The study looked at a number of Social Lending players, and used Zopa, the online marketplace where people meet to lend and borrow money, as a case study. Zopa currently has 105,000 members in the UK.
Zopa is based in the UK, while Prosper is currently the social lending leader in the U.S. You can read my brief review of Prosper from the NY Tech Meetup.
The basic idea with social lending is that when you need money, others will pool their funds together and lend them to you at x% interest rate. Prosper uses your credit score to determine your risk rate and then based on that risk rate you bid for the loan with your terms. What makes Zopa & Prosper popular is the “social” aspect; that is you can post your story about why you need the money. Jane described a woman who wanted a boob job and posted her story and was able to receive the funding even when every bank she tried turned her down. Jane described Prosper as: eBay + PayPal + Match.com.
The report is a worthwhile read, but a bit long at 115 pages. The table of contents include:
- History of social lending – goes back to the 1800s
- Contemporary social lending trends
- Social lending today
- Future for Zopa
Some interesting findings from the report:
On fairness and finances
- More than a third of respondents strongly agreed that the big banks aimed to put customers in debt
- 61 per cent said that the main aim of their bank was ‘to make money for themselves’. Only 15 per cent thought that the main aim was to provide a good financial service to its customers, 14 per cent felt their bank’s main aim was to help people manage their finances and a meagre 5 per cent thought their bank’s main aim was to provide a valuable service for society
- Between 43 and 69 per cent of people (depending on which bank they banked with – from a list of high street banks) felt that the interest rate charged on monies borrowed from high street banks was not fair in comparison to the interest rate received on savings and investments.
- Nearly 8 out of 10 people of people who have borrowed on Zopa said that Zopa secures a lower rate of interest than offered by high street banks
- On average, 64 per cent of general bankers said that they had received charges from their principle bank which they felt were unfair or unreasonable
On community, transparency and ethics -
- Only 12 per cent of general bankers thought their bank was sufficiently involved in community projects, and more than 3 out of 5 claimed they were unaware their bank had community projects
- Less than 1 in 10 general bankers surveyed were aware of their mainstream bank’s endevours to enable the disadvantaged to gain access to credit, the development of community projects, environmental and entrepreneurial projects. The largest proportion of people, 29 per cent, claimed that they were unaware of any ethical policies
While Zopa is certainly the main focus of the report, the topics are still on point. I think the social lending scene will certainly grow as those with adverse credit situations find a new way to get the funds they need, even if they are at a very high interest rate.
When banks say no, social lending says yes.
There is a reason that banks exist. Banks are generally able to provide intermediation between depositors and lenders more efficiently than peer-to-peer lending can. It is difficult to establish creditworthiness of the borrower through social lending networks, though granted credit scores do make this possible to some degree. Also, banks allow default risks to be shared, whereas if your PTP loan goes bad, you’re out of luck. Interesting concept, but I’ll stick to the banks.
The reality is that overall consumer debt is north of $2.5 trillion where revolving credit card debt alone is $960 billion! Social lending is a great alternative for those looking for help outside of their respective banks with favorable terms.
There’s laws to be thought of here, like state usury laws which put a limit on how much interest can be put on loans, and limits on the extent to which a person loaning money can ask for the money back (e.g. threatening loss of life/body part, or retribution against peers/family).
This seems more dangerous then anything else, since using the internet – you can avoid these little state based laws.
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free online tv
Unfortunately there is no shortage of either ethical individuals or unscrupulous ones. Imnagine the people on web romance sites.
Imagine money being involved.
I would be very wary of this and the logistics of ever seeing loant money again.
A fool or even trusted person and his money are soon parted.
http://www.tratfor.com
Free online tv? What the hell?
You cannot avoid state laws on Prosper, usuary laws are taken into account, you CAN NOT lend beyond the state limits http://www.prosper.com/legal/states_and_licenses.aspx. Prosper is the actual LENDER of the money to the individuals looking for the loans. The so called “Lenders” that actually bid on the loans are actually the “loan purchasers” of the loan that Propser actually funds and sells to the “Lenders”.
Hi, Dave from Zopa here,
Just wanted to chip in and say that lending at Zopa is very safe for lenders and borrowers. We do all the same credit, ID and fraud checks that a bank does, and as a lender, we’ll split up your loan over 50 borrowers to create a portfolio for you.
In over 18 months of business we’ve only had one defaulting borrower – and lenders are seeing returns (after the Zopa fee and bad debt) of 6.75%
Shout with any questions,
Cheers
Dave
Come to Winnnipeg where “Pay Day” Loan Shops avail.
The banks have left town so to speak and opened computerized banking.
These people do not feel comfortable in banks and as well do not fit requirments for bank accounts – an address of more than 3 months etc. etc. etc. . As well they do not have funds to wait for clearing time periods of funds.
Enter their saviour. Pay Day Loans. Have your money now.
Modern day slavery.
http://www.glendalegolfs.com
i think social lending is a great thing.not only do you have prosper but there is zopa and lending club.
I think the interesting story here is how credit scores can make anyone into a lender. I used to work at a bank and basically they loan based on credit score. Now that it is so easy to get access to these scores, anyone can set up shop and use the same methodology as the biggest banks.
I’d be a little wary combining social networking and money, but hey, maybe it will work
Is there a chapter in South Africa. If not, what would it take for you guys to be able to provide lending to South Africans. We source funding for small and medium businesses in South Africa and as you know the bank system is great at offering umbrellas when it’s not raining and are not inclined to provide funding to start up or new businesses needing to expand.