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Zopa Launch Imminent

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Zopa, a peer-to-peer lending company with a long history across the Atlantic, has sent me (and probably countless others) an e-mail saying that they are going live with their service "within a few days." I haven't been keeping track, but it's probably been more than a year since they announced it was coming to the US. With Prosper.com and Lending Club already in the US, why would anyone need Zopa? What new twist do they have in the space?

From the e-mail here is the big thing that stuck out when I read it:

No risk for investors. Your funds will be federally insured. No more worrying about whether your borrowers will pay your loan back.

Wow, seriously?!?! Let's back the truck up on this one. No risk. Zero. Federally insured. This changes everything right? I'm not convinced that it does. I don't believe there's reward without risk (or my arch enemy, work). So if there's no risk, one can imagine that rewards in Zopa will be limited.

There is a Wall Street Journal article that confirms this: "Lenders, buy one-year Zopa CDs that are used to help fund those loans... interest rates are currently capped at 5.1%"

zopa_home.gifSo there is the rub. Investing in Zopa is very much like buying a bank CD. The only advantage vs a bank CD that I can see from a lending standpoint is that the lender can lend money to a specific borrower. This may be psychologically nice, but it's never been the biggest selling point in peer-to-peer lending for me. If I really knew the person I was helping outside of Zopa that would be of value to me. However, helping a strangers is nothing new. Ten years ago when I bought a CD from my credit union, what do you think they did? They used that money to lend out to other people. I don't see how this that different.

I've always been first and foremost a fan of Prosper.com. I feel it gives me an opportunity to make bigger returns, even if it means taking on risk. That's what I'm looking for in a peer-to-peer lending company.

Last updated on July 29, 2011.

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P2P Lending

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10 Responses to “Zopa Launch Imminent”

  1. Keith says:

    So let me get this straight, you lend money there (ie: buy a CD) and earn only 5.1%? Zopa then lends that money to someone and collect the interest rate difference between the 5.1% and whatever they pay based on their credit?

    Well, if that’s the case, where’s the opportunity for me to make more than 5.1%? I guess the security of the “CD” would be the only incentive to me.

  2. Minimum Wage says:

    Looks like none of these are of much use to a poor American.

  3. I’ve had Zopa on my radar for a while. When I first heard about them it was more about making loans to people in a friendly way and a way to have terms defined if you are loaning money to a friend or something (not that that is wise in the first place). I don’t think the aim of Zopa was to make you rich, but to make loans more friendly somehow.

  4. Lazy Man says:

    Keith, you have it right as far as I can see. The security of a CD is all that’s in it for you. And CDs have been widely available for decades.

    MW, no more use than a regular bank CD would be a poor American. But at least it’s not less use than a regular bank CD.

    I guess it’s something to make loans friendly, but is that something you really want to spend your time with? Most people want to think about their finances as little as possible. Why not buy a bank CD and go on being friendly with your local neighborhood or existing online connections?

  5. It doesn’t seem all that appealing to me. I would be after the higher returns which it doesn’t provide. I’m interested to see how the business model holds up (if it does). I’m not too confident in it though.

  6. Mike says:

    I keep looking at this wonder what magic will be. If it quacks like a CD, it’s pretty much a CD. And if it’s pretty much a CD, Zopa is competing in an undifferentiated market. It’ll be tough going.

  7. Rob says:

    Lazy Man:

    Thanks for the article. Very interesting analysis.

    However, I think there is still value to the overall person to person lending space in reaching some of those lenders who may be more willing to try the concept first through a product that is closer to what they are familiar with.

    I encourage your readers to open a lender’s account at Lending Club, and I will award them $25 bonus after funding the account so that you can test drive our concept. [Editor’s note: Prosper offers the same bonus. See the link on the right column of my website.]

    [Editor: Link disabled. I don’t believe comments should be openly promotional]

    Our average rate of return to our lenders is currently 12.2% +

    Best regards

    Rob Garcia
    Director, Web Production
    Lending Club

  8. Neil says:

    The Zopa system seems like a neat idea. I would be more interested in it if there was a higher return rate though. If that ever gets bumped up to near 6% I might look into doing it. I can still get a 5.0% 1 year CD from my bank…we’ll see how long that lasts though.

  9. Quotes says:

    I’ve used prosper a bit, and am very pleased. I can’t find any advantage for lenders on zopa. Like Neil said, I can walk over to my bank and get 5%. Or almost 5 in an online savings account!

  10. Monevator says:

    I have experimented with Zopa here in the UK. At the moment I’m getting loans away for about 6.9%, which is good, but they are nearly always going to people who say they need the money for “debt consolidation”.

    These are AAA borrowers so hopefully they know what they’re doing, but still I think it’s a sign of the ongoing credit crunch and expect bad payments to rise as the economic troubles worsen.

    Just over 5% looks a rubbish return to me, even with that guarantee. Maybe put $20 in to explore the site’s functionality, which is pretty clever and well designed.

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