There seems to be a storm brewing in financial services about the use of services such as Zopa, the online lending exchange where depositors can lend money directly to borrowers at a mutually agreed interest rate. 

Dubbed the “e-Bay of banking”, the idea behind Zopa is that by cutting out the big banks, borrowers should get cheaper rates, and lenders get higher returns.

So, with banks still turning down potential borrowers, and reluctant to relax their strict lending criteria, many consumers have been turning to Zopa as an alternative sources of affordable credit.

But this initial blog posted up on Zopa’s own website has sparked a debate about Zopa’s ability to apply competitive pressure on the banks - and the argument has now spread to Twitter, at #bankbloggerfight:

Why the banks need Zopa

Could Zopa become the first real competitive pressure banks feel to put their customers more at the centre of what they do? I think so. And that would be good for all of us - even ultimately the banks themselves… But when I have suggested this to one or two bankers in charge of strategy for a couple of the big banks, they laugh - out loud. More

 This post was answered almost immediately by a blog by James Gardner at Bankervision.

Zopa’s strategy is to be immaterial to banks

“Zopa rely on credit scoring, just the same as banks do. Zopa, if it is to be disruptive, needs to be creating lending to new customer segments either underserved or not served by traditional banks… They could be, but they choose to do the same things banks do, but with a nice little social layer on top.”  More

Both these bloggers have vested interests - one is closely associated with Zopa and the other works for a UK bank. But the debate has caused a stir in the wider financial services industry. It was picked up by The Financial Services Club Blog: 

Why social finance, and particularly Zopa, matters

Zopa “passes the £50 million of loans milestone and does 40% of that in just this year alone. Compared to the banks the numbers are of course tiny, but the pace of growth is quite remarkable.” … The same is true of SmartyPig, a business that teams with banks. SmartyPig tell me that they currently have $170 million in core deposits in the US, and projections are to hit $500 million by year end. This is for a business that only launched in April 2008, and one that spends nothing on advertising. More

But what we at Money Matters want to know is whether UK individuals who have used Zopa have got a good deal. At the start of the year, Matthew Vincent wrote a piece about a new online auction site for fixed-term deposits - and although he found that online lending exchanges such as Zopa were offering higher rates of interest, he suggested that these rates could come down as the number of lenders using Zopa increased.   

So what is your view of Zopa - have you used it to borrow or lend money?

August 20, 2009 1:03pm in Banking, Savings | Comment