Zopa, still (it would appear) the world’s first peer to peer online lending service, has launched Zopa Listings, allowing individual borrowers to post their own specific requests for loans for individual lenders to review and then bid against.
Zopa already has a Markets product where lenders meet borrowers. The new Zopa Listings (to be found here) allows individuals to ‘pitch’ online for the loan they want, giving details of what they are borrowing for, the interest rate they are seeking and their own personal circumstances. Lenders then choose between these individual borrowers and bid, eBay-like, to lend to them, offering an amount and the interest rate they are prepared to lend at. A listing can include photographs and (eventually) a video. When the listing closes, if the full loan amount has been achieved and the borrower is happy, it will go ahead at the aggregate interest rate of all the offers. If the amount is not achieved, the process stops there, although the borrower will have the chance to re-list. Lenders can bid with a lower interest rate offer to any listing that has yet to close, even if the loan amount is fully covered – keeping the competitive process live until the very last moment.
Zopa hopes that the bidding process will create competition amongst lenders to offer the best rates they can, creating a more efficient loans market. Charges for the new service will be the same as the existing Zopa Markets – successful borrowers pay 0.5% of the value of the loan and lenders will pay 0.5% of the value of their loans per year, as an annual charge to Zopa. There are no other charges.
This ‘Social Lending’ approach is likely to appeal to the Facebook generation, used to seeing these kinds of pathetic cries for attention… sorry, I mean witty requests for cash. The key thing here is that borrowers get to tell their own personal story in all its glory, tugging at the heart-strings of potential lenders. Heard of irrational exuberance? You ain’t seen nothing yet.
“New nursery needed for little tike” already has 3 offers for its £4,000 loan (since when did a lick of paint for the spare room cost that much?), while the “New internet venture seeks financial help” listing has had two offers (at a 7.4% rate) for its £2,000 loan request. I don’t hold out much hope for its chances.
However, I do quite like the personal touch in all this. Plus, Zopa plans to keep it from getting too silly (e.g. Mid-life crisis journo wants a Harley’). All would-be borrowers who want to post a listing will be vetted to ensure they are “credit-worthy, prime market borrowers.” This will help to protect Zopa lenders. And Zopa, presumably.
Giles Andrews, managing director of Zopa UK says: “Social Lending can be a better alternative for people seeking to borrow, or to find a more attractive return on money they have saved. Zopa Listings adds new levels of individuality, personal control and choice, extending the appeal of this innovative alternative to the banks even further.”
There may be something in this. We are constantly told by ‘marketing experts’ that we’ll eventually be trusting our social network above all else, so mashing this up with a lending system could well be the way of the future. It can’t be worse than the Northern Rock debacle…