[Dave Birch] I went over to the FS Club to hear Forum friend Giles Andrews of Zopa give an update on their progress. He explained that one way of thinking about Zopa is as a bond market for consumers, but one that allows people to get a social return as well as a financial one. What an interesting description. And it was an interesting meeting.

…

What I found particularly interesting was the relationship between Zopa and retail banks. In an odd way, the credit crunch came along at the right time for Zopa. Their lending went from £15 million in 2008 to £35 million in 2009 to £75 million this year. It seems to me that as public trust in banks collapsed (along with the interest rates) so more and more people turned to Zopa.

Social lending takes root in Japan | Japan Today

What does the company offer?

Our company provides an online social network for individual borrowers and lenders where they can find each other. Borrowers auction their conditions, including interest rate, and lenders who offer the best conditions can lend money to them. Lenders can consider whether it is a good investment from disclosed information about borrowers. But both sides cannot reveal personal information and we do not allow them to physically meet each other as a safety measure.

How does the system work?

In legal terms, our company lends money to borrowers and lenders invest on pecuniary claim to us as a fund. Although this system is theoretically complicated, the process for borrowers and lenders is very simple.

These last few weeks have seen  a number of major announcements in the Social Lending space including the following:

- Zopa US announced that it has restructured its operation in the US in collaboration  with their credit union partners.
- LendingClub announced it is reopening its US business following its successful registration with the SEC and with the innovative addition of a secondary trading market for their loans.
- Prosper announced that it is closing to new Lenders in order to register promissory notes with the SEC similar to the process just undertaken by LendingClub.
- Zopa UK announced their best month ever, with borrower volumes more than doubling as a result of the credit crunch.

So, how does one sort out all of these announcements?  Is it, as TechCrunch and the New York Times have recently suggested, that the international “credit crunch” is adversely affecting social lending platforms in the same way as it is adversely affecting more traditional lending?  If this was true, then the Zopa UK announcement of drastically increased volume and the LendingClub announcement of asuccessful registration with  the SEC would seem quite out of place.

As insiders in the new, exciting and entirely human industry of social lending, we at CommunityLend see these announcements in a very positive light.  We see them as a sign of the maturation of this young industry.  In social lending’s early days a few years ago, most of the companies who launched their services had very little, if any, regulatory approval by the traditional financial services or securities regulators.  And yet, the core of the business is to create a new asset class for investors and a new lending channel for borrowers.  As time has progressed and these services have shown a significant and expanding audience of folks interested in using them, the appropriateness of regulation has been accepted.  We embarked on regulatory consultation early and understand the need very directly.

The result is what we are seeing with the Prosper and LendingClub announcements and, to a certain degree, what we are seeing with the Zopa US announcement. (As we interpret it,  the Zopa US model was really a compromise market entry by Zopa due specifically to their attempts to deal proactively with the relevant US regulations.)

We at CommunityLend believe that this phase of traditional regulatory compliance is a necessary evolution for the social lending industry in these troubled economic times.  We also believe that it will make us even stronger and more appealing to customers by making us more disciplined in our approach to the very serious business of managing people’s money and of helping people to get access to much needed capital at a reasonable price.

Michael

Lending Club Reopens to Lenders while Prosper Shuts Lending Down | budgetcents.net

Until we complete the registration process, we will not accept new lender registrations or allow new commitments from existing lenders. If you’re an existing lender, your current lender agreements will be unaffected; your existing loans will continue to be serviced; you’ll be able to track and monitor your loans; and you’ll be able to withdraw funds from your Prosper account.

If you’re a borrower with an existing loan, you will continue with your current borrower agreement and be unaffected by the registration process. If you’re a borrower seeking a loan, you will still be able to create a new loan listing, which we will endeavor to fulfill through alternative sources.

P2P-Banking.com » Poland: Monetto has financed 1 million Zloty loans in 4 months

Monetto.pl, one of the three p2p lending services active in Poland has financed 1450 loans applications resulting in 440 loans totaling 1 million Zloty (approx 0.5 million US$) in 4 months. The average loan amount is 2300 Zloty. The service claims 8000 registered users and a repayment rate of 97% so far (which is said to be a good result)

Social Networking Watch: Zopa, CEO Douglas H. Dolton – SNW Interview

What is your long term vision? Where could you see Zopa and the industry being in 10 years time?

I honesty think that the efficiency, convenience and trust that you get with dealing with an entity like Zopa will become more and more attractive to people. I can see this will be a multi-billion dollar business. 10 years from now or so, we’re going to have quite a bit of interactive social finance activities taking place with unsecured consumer loans and who knows beyond where that could go. Transactions involving currency exchange, transactions involved car insurance – that’s another thought, where a group of people will come together and pool their resources to provide the first tier of losses associated with car insurance and then they will buy a blanket coverage to provide a full coverage to everybody. As time goes on, we will see more and more of this democratization of finance taking place with transactions well beyond simply unsecured consumer loans.

Innovation and Transformation Wings: Social Lending: A New Form of Disruptive Innovation in Financial Services

‘Peer-to-peer lending is a means by which borrowers and lenders may transact business without traditional intermediaries, such as banks. The process may include other intermediaries who package and resell the loans – examples include Prosper and Zopa – but the loans are ultimately sold to individuals or pools of individuals. An enabling technology for peer-to-peer lending has been the Internet, which connects borrowers with lenders, for example through an auction-like process in which the lender willing to provide the lowest interest rate “wins” the borrowers’ loan’. Other leading models striving for foothold in Canada is Community Lend.

Incidentally, we continue to make good progress with the regulators, and still plan to launch in 2008.

Chris Larsen (Prosper) speaks about the current opportunity, in context of the US credit shifts.

Peer-to-peer lending grows in bad economy (Page 1 of 2)

“Home equity used to be the cash management tool for the credit-worthy borrower, and that has really, really dried up,” says Chris Larsen, CEO at Prosper. “In many ways, Prosper’s three-year, $25,000 loan is a pretty good proxy for what people were using home equity for — improving their home, starting a sole proprietorship, college costs and certainly for replacing credit card debt.

“On the return side, people that are getting 3 percent if they’re lucky (can find) it’s pretty easy to get returns that might range from 5 percent to 11 percent (on Prosper).”

The notion of p2p lending to pay off locked in credit card debt is a powerful one, whose time has come. Javelin have a new estimate on the size of that market:

Mark Schwanhausser, a financial services analyst at Javelin Strategy & Research, says their study shows that credit card debt is the main reason people want to engage in P2P lending. “We’re forecasting that P2P lending specifically for credit card balances will grow from $38 billion in 2007 to $159 billion by 2012.”

The author, Laura Bruce has shifted to being more bullish on the p2p lending space now.

It’s been little more than a year and a half since I last wrote about P2P. See the previous article, “Person-to-person lending: High return, but risky?” for a look at how P2P generally works.

The regulatory issues are laid out from the perspective of Zopa with quotes from Doug Dolton.

“Making a loan requires pretty much a bank license,” Dolton says. “You’ve seen both Prosper and Lending Club change their models because of that issue; they both now use Web Bank to make loans. But then on the other side, you have lenders investing. Our read on the U.S. regulatory situation was that it was a security. We couldn’t see any way around it. You needed to be registered with the Securities and Exchange Commission and all of the issues that brings on.”

Lastly, some stats are included on the increased growth rates at Prosper & lending club, and a reference to Bankrates chart (pdf) summarising the US players.

Peer-to-peer lending grows in bad economy (Page 1 of 2)

The credit crunch has meant that many deserving consumers, who once qualified for home equity or personal loans, are being shunned by banks or offered loans that cost too much. On the flip side, the effort to fix the credit crunch is sticking savers with miserly interest rates. Put two groups of unhappy people together and they just might do business.

Thicken My Wallet » Blog Archive » What the P2P lending industry doesn’t want you to know: of Lending Club and Prosper

Here’s the regulatory issue- IF A PERSON INVESTS MONEY AND HER
EXPECTATION OF PROFIT IS DERIVED SUBSTANTIALLY THROUGH THE
ENTREPRENEURIAL AND MANAGERIAL EFFORTS OF OTHERS, IT IS DEFINED AS A
SECURITY.
….

And, yes, this also applies to Canada as well- so CommunityLend will have to file with in jurisdictions where it operates as well if it works on a similar business model.