Lazy Man and Money

Zopa US is Dead

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I hope you really like to hear about peer-to-peer lending news. Earlier today, I wrote about how Lending Club opened for business again and just before Prosper died (not in the traditional sense, just closed it’s doors for a potentially “several months” while it passes a few steps with the SEC).

However, I really wanted to write about Zopa US dying. I know I’ve been fast and loose with the “[insert peer-to-peer company] dying” phrase in the past, but this is truly the case this time. Zopa US has officially announced that it’s closing it’s doors.

I’ve said it before and I’ll say it again, Zopa wasn’t a pure peer-to-peer lending company. Sure you could buy a CD and offer to help out complete strangers. I don’t know why’d you’d do that when you could buy a CD from a local credit union and help someone in your community.

It looks like my experiment to get a negative interest rate at Zopa has come to a close.  It didn’t work anyway.  I’d like to give a big thanks to Prosper Lending Review for passing on the tip, since I hadn’t been following them very closely.

Loanio Launches!

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In a release so delayed that it made the latest installments of Rocky and Indiana Jones seem like nothing, Loanio has launched. If you go back to the darkest corner of your memory you may remember that Loanio announced it will be a peer-to-peer lending company intending to compete with Prosper and Lending Club. I would mention Zopa in the conversation, but in the US they are not a peer-to-peer lending company. My only interest in them was their potential of negative interest rates, but I’ve found that it’s not practical. I couldn’t even lower my interest a half point with a pretty sizable audience.

I had long been looking for the peer-to-peer industry to grow into it’s own. I reasoned that it makes that margins could be better if people acted as their own loan officer. I also reasoned that being a loan officer can’t be all that difficult if you are diversifying your risk. Well, Prosper had some missteps. Lending Club had more as they’ve effectively had their doors closed over the last 6 months while, popular rumor has it, they catch up with the regulator’s regulations. So with Lending Club down, the industry needed another player… and it looks like Loanio is finally ready to step off the bench.

So what sets Loanio apart from Prosper? I’m glad you asked. The biggest thing I’ve noticed is that they introduce the concept of co-borrowers. You probably don’t need to click on the link to figure out what this is. It’s a co-signer on a loan. It make the loans less risky for the lender to take. While that sounds good to me (especially because I’m lender on Prosper and Lending Club) why on Earth would someone want to be a co-borrower? What’s in it for me? I guess the answer to that is friends do it to be a good friend. Plus if you default and cause your co-borrower to have to pay off your loan, you are probably setting yourself up for a few free punches to the face. Maybe that’s enough incentive. What if the co-borrower doesn’t pay though? After all, he would want to pay even less than the original borrower as he didn’t receive any money in the first place.

I don’t know how it will all end up, but before I jump in I’m going to be following Loanio’s Blog and subscribe to it’s RSS Feed.

Zopa Scam? I Borrowed Money On Zopa. Here’s Why…

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A couple of weeks ago, I went to Finovate Start-up to learn whatever I could from various financial company start-ups and report back to you. I hoped to find three or four gems in the 40 companies that presented. One of the companies that I was least interested in was Zopa. In the UK, Zopa is a very successful peer-to-peer lending company. This lead to their widely anticipated US release. When the product was introduced, critics universally panned the service. For the investor, Zopa is basically a CD – you get a guaranteed fixed rate of return. For the borrower, you get a loan without ever having to deal directly with a bank. There simply didn’t see anything “Finovative” about the company.

At Finovate, they reinvented their reputation. By the end, they had one the coveted award of Best of Show. I was stunned. How did they do it? Borrowers can pay negative interest rates.

Let me repeat that, because it took me a bit to wrap my head around it… you can pay negative interest rates. How can that happen? When someone invests in a Zopa CD, they choose a borrower to help. This “help” reduces the rate that the borrower has to pay back. Zopa showed a couple of examples where borrowers are paying negative interest due to all the help they’ve received.

So if the borrower can make negative interest, the investor must be getting the short end of the stick right? Not exactly. A Zopa CD pays 3.75%, which compares well with the US Avg (2.90%) as well as the Top 10 US Bank CDs (3.65%) (source: Bankrate.com, 24-Mar-2008). The Zopa CD is insured up to $100,000, so it’s a steady investment if you like the returns on a CD.

I didn’t need a loan, so why did I get one? I have often written about peer-to-peer lending. I created the Carnival of P2P Lending. I felt that it would be interesting to be on the borrowing side. Most importantly though, I wanted to experiment to see if I could achieve a negative interest rate. If I can’t achieve a negative interest rate through connections like you, the odds are very long against the average Joe doing it. So the results of this experiment lie in the Lazy Man community… If you want to help me achieve a negative interest rate simply visit my Zopa profile and click on the Help Me Now button. I put up my favorite YouTube clip and a couple of pictures on that profile for your enjoyment.

Before my wife reads this and I get a nasty phone call… Honey, I only took a $1000 loan – the lowest amount possible. I got the lowest possible interest rate 8.49%. This means that if I keep the loan for a full year, I’ll pay around $85 to run this experiment. If I don’t receive significant help in 6 months, I’ll probably cancel the experiment and declare the negative interest rate hype and not something that one can expect. I’ll also keep the money that I borrowed in an interest bearing account, which means that it will cost less than $85 in total. With our net worth, income, and spending, this doesn’t really amount to much. One could even claim that it was worth it to realize that I was able to get the best interest rate that Zopa has to offer despite being self-employed.

Finovate Demos – Part 4

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In case you missed parts one, two, and three, I’m sharing my notes after seeing 40 start-up financial companies present their companies. Today, I’m rounding up the last of the four companies.

BlingNation – You’d think this name would have something to do about pushing luxury branding, but that’s not the case. It’s yet another mobile payment. It looked like they weren’t a consumer product, but instead plan to sell their product for private branding.

Zopa – Won the Best of Show, which I think shocked many. This is not a P2P company in the US like the UK version (and they went out of their way to stress that). Zopa evaluates each country’s culture and regulations to determine the business opportunity present. The most interesting about this demo is that you can actually take a loan and pay back negative interest – if you have help from others buying a CD. Expect to read more of this from me in the next week or two.

TrustedID – I went to the restroom during this presentation, but for completeness talked to them after their demo. They prevent identity theft so they’d be in the same space as Lifelock. Looking over the benefits of their $100/year plan, I imagine one could approximate the value by getting free annual credit reports, free services like CreditKarma, and freezing your credit report when you don’t need it (free in some states, $15 in others).

BusinessLogic – MoneyPools – Incredible graphs, they just need Tom Cruise waving his hands to control them and you’d have Minority Report. Overall the product helps you view your asset allocation in extensive detail. Once your data is loaded in, you can do things like look at your retirement accounts in aggregate and then “zoom in” on sector and style analysis.

Aradiom – Another that I’d have to put in the “best demos” category, but completely irrelevant for consumers. They create a platform that makes it easy for banks to build mobile banking applications. Sounds dry, but they built an application there in the five minute demo. You don’t need to be a programmer, so it reminded me a lot of Visual Basic. You add pre-defined high-level components like a login screen and you are up and running.

CheckingFinder – This was a standout of the show and when they launch in a month, I’ll likely be in great support of them. In short, it’s a search engine for high-interest yielding checking accounts. They showed some banks that were willing to pay you 5% or more on your checking account if you meet a few requirements (such as make 12 debit transactions a month). I don’t know about you, but that’s getting into Scarlett Johansson attractive territory.

Sparkroom – I didn’t fully understand their product. It seemed to help people analyze how their lead generation campaign is performing. This is something that’s apparently useful for those in the mortgage business.

TradeKing – They seem a lot like Zecco except that you pay commissions. They focus on the community aspect as well and have been around longer. In the end, it’s about stock trading and telling others about it.

ClairMail – Another mobile banking company. At this point in the day, I was pretty much asleep. I didn’t really see anything exciting for consumers here.

Vestopia – Allows you to view the transactions of a real industry professional in real time. I think it’s an excellent contrast to the crowd-sourcing that other companies are doing with their community. To be honest, I didn’t have high expectations of this company, but the presentation was decent and I got to speak with the CEO for a few minutes which really galvanized the idea for me.