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The New Intersection of Banks and Marketplace Lending

The lines are blurring between banks and marketplace lending platforms and I argue that is not a bad thing.

December 21, 2016 By Peter Renton Leave a Comment

Since Lending Club announced the first bank partnership in 2013 banks have been increasing their involvement in the marketplace lending industry. But in recent months it feels like banks have become even more integral to our industry. Platforms are now actively contemplating acquiring a bank or starting their own bank. Many think this marks the end of the disruptive nature of marketplace lending. I couldn’t disagree more.

Zopa is Leading the Way Again

Zopa began the peer to peer lending revolution when it launched in 2005 and they are leading the way again with their announcement last month that they will be launching a digital bank. Their application has to go through a lengthy regulatory approval process that could take as long as two years but once approved they will be able to take deposits and offer a full suite of banking services.

The digital bank will remain separate from their P2P lending platform but clearly there will be some cross selling to Zopa’s clients. Zopa investors may decide to open a savings account or take out a small business loan, services that Zopa could add once they launch their digital bank.

SoFi is the Company to Watch in the USA

SoFi has a very different business model to Zopa. They were never a peer to peer lender but have operated a hybrid marketplace/balance sheet lending model. They are, however, the clear leader in online lending today in the US. They currently offer multiple products: student loans, personal loans, residential mortgages as well as wealth management services and recently began offering insurance. This suite of products looks similar to what many bank holding companies offer. [Read more…]

Sharp Increase in Originations Across UK Platforms in September

Leading platforms Zopa, Funding Circle, RateSetter and MarketInvoice all had record months in September.

October 6, 2016 By Ryan Lichtenwald Leave a Comment

According to the Liberum AltFi Volume Index, September 2016 originations for online lenders hit £364m in the UK. September was a record month, beating out the previous record set in March, 2016 by £18.5m. Over the summer originations were stagnant across the industry as seen in AltFi’s chart below of originations since 2010. They have highlighted the September months to show seasonality as September has historically been a good month for originations.

UK Originations – courtesy of AltFi Data

If history is an indicator, we may see originations drop again in October but it’s important to note that even in this challenging year for the online lending industry, UK originators have still managed to grow.

Not surprisingly leading platforms Funding Circle, Zopa and RateSetter all had record months. According to AltFi Funding Circle, RateSetter and Zopa originations were £75.2m, £74.3m and £67.8m respectively. Funding Circle officially crossed the £1.5bn mark in cumulative volume. The below chart shows cumulative lending across the three leaders and p2p lenders as a whole.

In their article today AltFi said the reason for the increase in lending is not due to more institutional investor activity. Seems like this is a more retail investor driven boost. They provide these data points:

46% of Funding Circle’s September origination came from whole loans, which are favored by institutions, but this is lower than the high of 60% in March 2016.
Similarly, 50% of Zopa’s origination was not covered by Safeguard (favored by institutions), down from a high of 60% in February 2016.
98.5% of RateSetter’s origination was covered by its Provision Fund, indicating that institutional money still makes up a small portion of its overall lending.

Conclusion

While it certainly has been a challenging year for p2p lenders across the globe, September numbers coming out of the UK are encouraging. It will be interesting to hear the perspectives of various platforms across Europe at next week’s LendIt Europe event.

It’s Official: P2P Lending to be Included in ISAs in the UK

After years of speculation the UK Chancellor made it official today. P2P lending will be included in a new Innovative Finance ISA starting in April next year.

July 8, 2015 By Peter Renton 2 Comments

There is big news out of the UK today. In his annual budget, Chancellor of the Exchequer (the equivalent of the US Treasury Secretary), George Osborne, made an announcement that will have a lasting impact on the P2P lending industry there.

Until now investors in the UK have not been able to be invest in P2P lending through the tax-advantaged ISAs (Individual Savings Accounts). And as we have discussed many times on Lend Academy taxable accounts make this investment less lucrative. While we have enjoyed investing through IRAs in this country for many years this has not been the case in the UK.

Here is the all important excerpt from the 2015 UK Budget:

Extending ISA eligibility – The government will introduce the Innovative Finance ISA, for loans arranged via a P2P platform, from 6 April 2016 and has today published a public consultation on whether to extend the list of ISA eligible investments to include debt securities and equity offered via a crowd funding platform.

This is a big moment for the industry in the UK so I reached out to the major platforms to get their reaction. They were all obviously very pleased with this development. This is what they had to say.

From Giles Andrews, CEO and Co-Founder of Zopa: [Read more…]

An Inside Look at Zopa – The World’s First P2P Lender

March 19, 2012 By Peter Renton 17 Comments

When Zopa opened its doors in 2005 it was the beginning of not just a business but of the new industry of p2p lending. Before there was Prosper and Lending Club there was Zopa in the UK. They are still going strong today and are one of the few (maybe only) p2p lenders that made a profit in 2011.

I know many investors have mentioned Zopa on this blog in the last couple of months. While you have to be a UK resident to invest I think there is a lot we can all learn from this industry pioneer. So, last week I chatted with CEO and co-founder of Zopa, Giles Andrews, to find out a bit more about what makes this company tick.

SLN: How did you come up with the idea for Zopa?

Giles Andrews: There were two catalysts that seem unrelated: the bond market and eBay. For a long time I had thought that the bond market did a good job of providing financing for companies – investors could find out information about the companies and make an informed decision about whether to invest or not. But that kind of information was not available in the consumer market. Back in 2004 when we were getting started with Zopa the world’s largest marketplace was eBay which was all about collaboration and social connection. We wanted to bring those two ideas together and create a marketplace for consumer loans.

SLN: What are the loan terms for borrowers and who is a typical borrower? [Read more…]

New Peer to Peer Lending Association Launches in the UK

August 15, 2011 By Peter Renton 12 Comments

The UK continues to be a trailblazer when it comes to p2p lending. Zopa, the market leader in the UK, was the very first p2p lender to come online, launching in 2005. Today, the three largest p2p lenders in the UK (Zopa, RateSetter and Funding Clircle) announced the formation of the UK Peer to Peer Finance Association.

This new trade association has been setup to ensure that the sector “maintains high minimum standards of protection for consumers and small business customers.” They have been quite clear about the reason for the timing of the formation of this association. Over the next 18 months the UK government will be working on new regulations for the finance sector, so they want to make sure their voice is heard.

Not All P2P Lenders Invited to Join

The UK has a vibrant p2p lending environment with at least seven companies in operation by my count. But only the three largest companies have banded together to form the association. They have indicated that other companies are interested in seeking membership but there are certain minimum standards that have to be met. [Read more…]

Go ahead, borrow money from your best friend

November 23, 2008 By Peter Renton 1 Comment

By Tamsen Butler

Social lending sites can help keep friendships and family relationships intact

You need money. Your mom, your Uncle Harry or an old college buddy has money and is ready to lend it to you.

That’s great! Keeping money all in the family is a popular way to go even for people who don’t have problems qualifying for a loan. A private loan can save you tens of thousands of dollars in interest that otherwise would go to the bank.

But how to set up the loan to everyone’s benefit? More importantly, how to make sure a problem with the loan doesn’t screw up the relationship?

After the all-too-awkward conversation that’s sure to take place about your loan terms, you could download an inexpensive promissory note form from nolo.com and do the paperwork yourself. Better than a handshake, it would at least put the interest rate and payment schedule in a notarized document.

The downside is you still have to remember to write a check every month. And if for some reason you forget to pay Uncle Harry? It could be a chilly reception at the next family reunion.

Person-to-person, over the Internet
A better way to borrow from someone you love might be to use a social lending (aka person-to-person or P2P) site. These loan sites not only draw up the paperwork, they service the loan for you, automatically deducting payments from your bank account and sending out reminder notices. Most services let more than one friend or family member chip in, spreading the risk; the site automatically disburses payments to everyone owed money.

Best of all? If you miss a payment, you can hash it out with the social lending site, not your mom.

Which site is best for family and friends?
Mainstream social lending sites like Prosper.com and LendingClub.com are really designed for stranger-to-stranger lending a dentist in the Midwest, say, loans a guy in Jersey the money he needs to start a pizza parlor. However, both Prosper and LendingClub claim they are also good places for friends and family to formalize loans.

The advantage to using a site like Prosper, LendingClub or Loanio.com to process a loan is that more than one person can loan you money and the site will automatically figure out and disburse scheduled payments. The disadvantages are that you have to formally qualify for the loan and pay a loan origination fee. Plus you have little control over the terms. This is especially true at the LendingClub.com, which assigns an interest rate based on your credit rating ranging anywhere from 7.88 percent to 18.61 percent. Ouch.

Their auction format gives you a little more control over the interest rate at Prosper and Loanio. Plus, any Prosper lender can start a Group to support specific borrowers. For instance, your dad could form a group called LoanForGary, which would let you invite pals and relatives to help fund your loan.

Owe less at Zopa.com
If your credit is good and you have more than a few friends and family members lined up to lend you money, the unusual Zopa.com might be a very good option.

Rather than use the person-to-person formula, Zopa requires that lenders first open an FDIC-insured CD with one of its six partner credit unions. Lenders must then “gift” some of their CD interest to lower the rate of one or more Zopa borrowers of their choosing.

Zopa currently pays a starting CD interest rate of 3.75 percent, so your lenders will have to be happy earning a very low rate. However, if enough people gift a portion of their interest earnings to help you, your interest rate can be driven down to nothing. Zopa could even wind up owing you money!

There are just a couple of catches: to borrow through Zopa you must have a minimum credit score of 640 and a minimum monthly income of $2,000.

Less hassle with Virgin
Saving what is probably your best choice for last, there is Virgin Money USA, the only site that does nothing but process personal, business, mortgage and college loans between family and friends.

There is no approval process to use Virgin’s services, and no need to divulge information any more personal than basic contact information. You and your lender decide on the terms – interest rate, length of the loan and payment frequency – before you sign up.

The site offers lots of tools to help you hash out the loan beforehand, including a loan calculator that lets you compare your Virgin-processed loan to a bank’s to see how much interest you save. Virgin also lists the IRS’ minimum interest rates allowed for private mortgages by state, a very handy feature that could save you tax headaches later.

Virgin drafts loan paperwork for a one-time fee of $99. For complete servicing that includes electronic funds transfers, year-end statements and e-mail reminders, the fee is $199 plus $9 a payment.

And if you default? Virgin restructures loans at no extra charge to keep the payments flowing and your relationships running smoothly.

Virgin’s only downside is that its automated system is not set up for repaying multiple lenders.

Staying friends with social lending
Loaning or receiving money from a friend or relative can be a great option, but the arrangement can quickly turn sour if you miss a payment. With a neutral third party like a social lending site you’ll have to pay some fees and fill out a few forms, but who knows? It just might save an important relationship.

Which Social Lending Site is Right for You

November 23, 2008 By Peter Renton Leave a Comment

By Vivian Wagner

A general guide to person-to-person lending sites

Choosing the right social lending site depends on your needs, and what kind of borrower or lender you are. Do you have stellar credit – or not so much? Must you have the highest possible interest rate, or would you be just as happy making a smaller return in order to help a one-person business in a third-world country?

Whatever your social lending goals, there’s probably a site out there for you. To help in your search, here’s a quick overview of the major players.

General purpose
Prosper.com, LendingClub.com and Loanio.com are for the most part designed for stranger-to-stranger transactions, which means almost anyone can sign up to lend or borrow. All three facilitate loans between $1,000 and $25,000 for a variety of purposes, including auto, business, debt consolidation, friends and family, home improvement, military, and student and school loans. Both charge roughly the same fees. However, the LendingClub favors lenders, whereas Prosper and Loanio are much better choices for most borrowers.

Prosper.com

Launched in 2006, Prosper, the largest mainstream social lending site in the U.S., operates on a bidding system similar to eBay’s. Borrowers post profiles of themselves designed to attract lenders, and lenders bid on the loans, with the lowest bids winning a chance to fund the loan. Almost any borrower, no matter how shaky his or her credit history, can post a profile on the site, and if the loan isn’t funded the first time, they can try again.

LendingClub

Based on Facebook, LendingClub is a relative newcomer to the P2P business, but it has quickly gained a foothold since its 2007 launch. Unlike Prosper’s bidding platform, LendingClub uses proprietary software to match lenders and borrowers based on common interests. It has high standards for borrowers, who must have a minimum FICO score of 640 and a debt-to-income ratio of less than 30 percent. The site is currently in a quiet period while registering with the SEC and is not accepting new lenders, though borrowers can continue to apply for loans. The site’s relaunch date for lenders has not been announced.

Loanio.com

October-launched Loanio might be wet behind the ears compared with Prosper, the other auction-based social lending community, but Loanio is already making waves with some intriguing new features designed to help borrowers with bad credit. One is a cosigner option. Another option releases a loan when funding reaches 35 percent, eliminating the problem many borrowers have attracting enough lenders to fund the entire amount requested.

Friends and family: Virgin Money USA
Thinking of hitting up a pal or relative for money? Then there’s only one real social lending site to consider: Virgin Money USA.

Known as CircleLending until airline and record industry mogul Richard Branson bought it in 2007, Virgin Money USA is one of the oldest social lending sites. Virgin Money facilitates and documents personal, business, real estate, and student loans between friends and family members. Its big plus: borrowers don’t have to qualify. Just pick up the phone and call the toll-free number or fill out an online form with terms you’ve already agreed upon with your personal lender.

Some mainstream sites, including Prosper, have friends and family sections, but the loan process isn’t much different from stranger-to-stranger lending and probably overkill for what you need. Virgin specializes in people who already have a loan amount, term and interest rate lined up with an individual they know. The fees are highish, but Virgin can make the transaction easy, convenient, and free of much of the awkwardness that usually accompanies borrowing money from your dad or best friend.

Guaranteed Loans
In general, social lending is at your own risk. However, for lenders desiring assurance that they won’t lose money, there are a handful of sites that offer guaranteed returns. The tradeoff? Lower interest rates or longer terms.

Fynanz.com

The student-loan site Fynanz.com offers lenders partial to full guarantees of the original loan amount, depending on the Fynanz Academic Credit Score (FACS) assigned the loan. The proprietary FACS scoring system that Fynanz uses rates loans based not just on credit scores but also on factors like the student’s GPA, course of study, school, class standing, and year of study. Loan guarantees range from 50 percent to 100 percent of the loan.

MicroPlace.com

The investments ” not technically loans ” that you make through this globally-aware microfinance firm have a guaranteed, up-front interest rate, so when you send in your money you know exactly what you’ll be getting in return.

Zopa.com

Founded in 2005 and with operations in several countries, including Italy, Japan, the U.K., and the U.S., Zopa offers U.S. investors federally-insured CDs that are used to lend money to borrowers. (In order to take out a CD, a lender must donate part of the interest to a Zopa borrower.)

Helping the Poor
If you want your money to help a grocery store owner in Afghanistan or a restaurant co-op in Africa, you might want to turn to one of the sites that specialize in microloans.

Kiva.org

Kiva links good-willed lenders with borrowers from third-world countries who need loans to buy animals, equipment, store supplies, or other goods for their businesses. Lenders earn no interest, so it’s best to look at loans through Kiva as charitable investing. (It’s also a nice educational tool if you enjoy learning about other countries.) As your loan is paid off, you can withdraw the money through PayPal or reinvest it.

MyC4

Founded in 2006 and based in Denmark, MyC4 raises capital for entrepreneurs in Africa. So far, 3,500 investors from 53 countries have loaned money to over 1,000 businesses in Kenya, the Ivory Coast, and Uganda. At this time, however, MyC4 doesn’t fully serve North American investors, who cannot withdraw money from their account once they invest it.

MicroPlace

Founded in 2006 and owned by eBay, MicroPlace is an investment firm that looks like a social lending site. Lenders invest money through security issuers listed on the site, and these funds are then invested in specific microfinance projects. Although not a social lending site, MicroPlace highly resembles one with profiles, narratives, and photos of borrowers.

Institutional Lenders
This social lending site focuses on serving institutional lenders, who partner with the site to offer borrowers competitive loans.

GlobeFunder

GlobeFunder offers what it calls “Direct-to-Consumer or D2C” loans and microfinance loans. Borrowers can borrow up to $25,000 in an unsecured loan. Lenders at the moment are limited to institutional lenders, but the company is preparing to launch an individual lender platform.

Student Loans
Many students are turning to private loans to fund their education, often as a supplement to governmental loans. Fynanz.com and GreenNote.com specialize in student loans. Virgin Money offers a special brand of family-backed student loan.

Fynanz

Fynanz offers a loan auction marketplace similar to Prosper’s. Students post profiles and request their desired loan amount. Fynanz assigns the loan a Fynanz Academic Credit Score (FACS) based on factors including the student’s GPA, course of study, and school, and then opens the listing to bids from lenders. Bids ultimately determine the interest rate.

GreenNote

Brand-new GreenNote, launched in June 2008, uses a students’ social network to pay for college. Students post their loan requests and then contact potential lenders – friends, family, community leaders, and anyone else in their extended social network – to help fund the loan.

Virgin Money USA

As with its “family and friends” loans, Virgin’s student loans are agreements made offline between a lender and borrower and brought to the table for Virgin to document and service with automatic electronic payments. That means a student loan can be as flexible and have interest rates as low as the lender (usually mom, dad or another relative) will allow. Rates can be below market and the payment schedule flexible to the point of long deferments or complete forgiveness, at the lender’s discretion.

Virgin offers lots of helpful guidance and advice such as its “œlender blender” calculator for students using P2P loans as a supplement to scholarships, grants, and federal loans.
The Student Payback program lets students borrow from the same lender up to 10 times over the course of their studies for one servicing fee, handy for parents who would like to make multiple loans to their student over several years’ time. The downside: Virgin doesn’t service loans made up of money from more than one source. In other words, your aunts, uncles and friends can’t pitch in, too, and receive monthly individual payouts from Virgin.

The New Intersection of Banks and Marketplace Lending

The lines are blurring between banks and marketplace lending platforms and I argue that is not a bad thing.

Zopa is Leading the Way Again

SoFi is the Company to Watch in the USA

Sharp Increase in Originations Across UK Platforms in September

Leading platforms Zopa, Funding Circle, RateSetter and MarketInvoice all had record months in September.

Conclusion

It’s Official: P2P Lending to be Included in ISAs in the UK

After years of speculation the UK Chancellor made it official today. P2P lending will be included in a new Innovative Finance ISA starting in April next year.

An Inside Look at Zopa – The World’s First P2P Lender

New Peer to Peer Lending Association Launches in the UK

Not All P2P Lenders Invited to Join

Which Social Lending Site is Right for You

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Zopa is Leading the Way Again

SoFi is the Company to Watch in the USA

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Not All P2P Lenders Invited to Join

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