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21/02/2008

Social lending will take 10% of loans market in two years - Gartner

James Gardner's Bankervision (an incredible read whether you are interested in financial services or not) carries a link to a shocking report:

Over at Technology and Finance, Tom Groenfeldt reports that Gartner is forecasting that in two years, ten percent of all retail lending and financial advice services will go to social banking applications.

Now James calls that prediction "aggressive" - and he's better placed to judge that than I - but what an incredible thought nonetheless...

Imagine ten percent of your market disappearing in a few years to social marketplace... Of course it's happened (and then some) already for music, news, classified ads, movies etc - but there's something thrilling about seeing the forces of change stirred up by the social web reaching the personal finance sector. (Or is that just me?)


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Looking at the "eBay for loans" that is Zopa, the idea is working. Really working. I have put a small amount of money into play as a lender

I would say that the conditions are right for this to happen in the UK faster than many might think. You see, we think of "the mainstream" in many markets, especially financial services, in a prejudiced, old media kind of a way. It's habit.


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But the mainstream for financial services in the UK has a massive, online-savvy, activist core. It's called MoneySavingExpert.com.

Over the past couple of years MSE's forum has grown massively and it now has over 283,000 active members, making it one of the most significant communities in the UK, and certainly the pre-eminent consumer finance community.

The email newsletter put together by the editorial team reaches a million people and the MSE website says it gets over 4 million visitors a month. This community was a major force - if not the prime mover in my opinion - in bringing the bank charges issue to the fore in the UK: an incredible demonstration of the power of online networks to out manoeuvre vested interests and corporations.

Zopa's already been discussed on the site's editorial and blog sections and is recommended as an alternative for people earning over £25,000 in MSE's advice on loans:

If Zopa's 'uniqueness' worries you, I wouldn't be. It's unsecured lending; you get the money and need to pay it back. If you were looking at 'lending' to Zopa, it'd be a whole different kettle of fish requiring some risk analysis, but borrowing from it is pretty straightforward really!

There are also 285 mentions of Zopa in the forums - sometimes people mention investing in it as part of their savings plan.

I think that it is here that we will see the momentum building that gives Zopa and similar providers the tipping point into the mainstream... What comes next? Well insurance and mortgages look like good candidates....

Comments

Coincidence. I just came across Zopa today; about an hour ago in fact and I checked to see how much I would repay on a £5k loan over a three year period. The total repayment would be:

£5603.65 @ 7.8%APR (inc. Zopa's £25 fee)

However I carried out a search for the same loan on a comparison website and the cheapest was:

£5566.11 @ 7.1%APR

So marginally cheaper with the second option.

There was a piece in the Economist on social lending around Christmas time and they came to the same conclusion as yourself. It's also available via their podcast somewhere too.

Have you seen this site?

https://www.elance.com/p/landing/buyer.html

This is going to be big I feel. Outsourcing your work with people bidding to do it. I'm going to test it out as I plan to get my blog updated a little. Some WordPress designers are charging $15 per hour. Compare that with the US or UK based designers and you're looking at $50 - $60 per hour.

Interesting.

A couple of thoughts re: a Zopa loan vs. cheapest loan rates out there - I think there's not a standard Zopa rate, it varies depending on credit scoring / what people will be will to lend you. You could find when you put your loan out to tender that you'd get a lower rate.

Also, a friend of mine got a loan recently to pay a tax bill and they really preferred the experience of getting a Zopa loan - they felt like the experience treated them as a person, in contrast to the aggressive, impersonal approach of traditional financial services companies.

When they got the loan they received a list of the people they were borrowing from - they said that felt good. Human.

The eLance thing is interesting - very much in the spirit of The World is Flat, if you've read that. I remember similar approaches going awry in the bubble years, but this is still something that should work. The principle's right - just getting the details and the critical mass right...


Financial services is all about brand and service as well as cost, the banks have taken advantage of that for decades but the likes of MORE TH>N and First Direct are not the best rates but they generate huge consumer loyalty.

Just had a look at the link posted by Stephen D, there is another site that I know well, set up in the UK to match up tradesmen with people who need work doing to their house - let me know what you think.

https://www.workbidder.co.uk/

All banks should make it a top priority to offer a fully featured online service with social and money mangement features. It's such an amazing concept because all parties are better off. The individual social lender gets a greater return on their money, the borrower gets a better interest rate and the loan manager (zopa) gets a good return for relatively little risk or work. As they say, the best person to be in business is the middle man.

I don't think it's any surprise that watchdog's customer satisfaction survey of UK banks found two internet banks at number one (smile and first direct). I think there is a massive opportunity for a single bank to dominate online banking by coming up with the most slick and fully featured online experience yet, problem is, will any of them? Or will a start up like zopa, mint or geezeo revolutionize how people lend, borrow and spend their money.

What's next? How about a country? We've seen people club together to buy a football team, who wants to put a pound in and buy the isle of wight?

The abridged bank survey can be found here:
https://www.bbc.co.uk/consumer/tv_and_radio/watchdog/reports/insurance_and_finance/insurance_20080211.shtml

Is the Isle of Wight a foreign country? I suppose they do do things differently there.

Hey Antony. Nice post and good to see you've tried Zopa. I work with them in the UK. Giles the MD over at Zopa has just posted about the stats - https://blog.zopa.com/archives/2008/02/21/10-in-2010

We'd be interested to hear any feedback and always like to receive feedback so please do get in touch if you have any other questions, or just fancy popping in for a cup of tea.

good post! hope to read more from you

great post keep it up!

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