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%"
So 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.
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