Zopa – the world’s first peer-to-peer lending platform launched in 2005 – has announced plans to become an online bank in order to challenge the traditional banking industry.
Zopa to launch online bank
Zopa, Britain’s biggest p2p lending marketplace has applied for a banking licence to launch a “next generation bank”. This planned bank will operate in parallel to its existing lending/borrowing business.
Zopa to launch online bank …it sounds crazy that a p2p lender is really aiming for it…but it makes sense.
By applying for a banking licence Zopa can offer its customers protection through the Financial Services Compensation Scheme, just like normal banks do on its customers current and savings accounts.
Zopa expects the licence approval to take up to two years.
When launched, the platform says it will offer term-deposit accounts for savers and revolving lines of credit for borrowers, although a spokesman admitted that they are still working out the full details of it.
By offering deposit accounts and overdrafts to its customers Zopa wants to use its extensive online lending experience to create a ‘next-generation’ bank that will challenge the current players in the financial markets.
P2P lending as the future of finance
Zopa CEO Jaidev Jardana announced:
“We launched in 2005 to create a richer life for everyone by making money simple and fair. We have lent over 1.8 billion GBP and inspired a 100 billion GBP global industry. We have built a profitable, scalable and viable business. Yet we’ve only just begun. We want to launch a next generation bank to drive greater choice for borrowers, savers and investors, which is good for consumers and good for the economy. We are uniquely placed to re-define customer expectations of what a bank should deliver in the 21st century. Over the last 11 years we have delivered great value to borrowers and investors whilst prudently managing credit risk. Combining our pioneering data and tech-led culture with an obsession with fairness and customer experience, we are best placed to shape the future of personal finance in the UK.”
New technology freeing the way to a banking license
New technology and freedom from banking regulation has meant that peer-to-peer lenders aim to offer better rates of interest to both savers and borrowers than conventional bank accounts.
The platforms (like Zopa, Mintos or Bondora to name a few) pair up savers, who want to lend their money, with small businesses or individuals who need a loans using modern web technology and match algorithms to beat the banks. The high interest rates an investor/lender can make goes hand in hand with a higher risk as the peer-to-peer lending market does not offer the protections of a bank, leaving customers exposed to potential losses. With a banking license Zopa aims to cover these risks by means of the Financial Services Compensation Scheme (FSCS).
Current low interest rates have pushed more savers to look at peer-to-peer as a way to generate returns on their savings. And with many platforms offering 10+% interest rates this makes loads of sense.
Lets hope Zopa manages to get their license so they can keep revolutionizing the financial system for the good of borrowers, lenders and the ordinary man.
After having been convinced that p2p lending is really the new undiscovered investment tool that it promises to be I decided to give it a shot at the beginning of 2016 which resulted in my first p2p lending experience…
Having done my research for some the last months of 2015 I was ready to make my first p2p lending investments and start the big p2p lending experience experiment.
The very first platform I invested money on was a relative newcomer from Latvia called Mintos. To find out all about My Mintos Investment experience read on…
Why I chose Mintos as my first p2p lending platform
Mintos was founded in january 2015 and quickly gained market traction through their transparent and novelty platform. One of the great features that made Mintos popular was (and is) that they allow you to invest in loans with a buyback guarantee greatly reducing an investor’s risk (more details about this below)
As opposed to many other platforms (who only offer unsecured personal loans) Mintos offers a great diversity of loans: from secured mortgage loans, personal unsecured loans, secured car loans to small business loans.
The minimum investment in one loan on Mintos is a mere EUR 10 making it a great starting point for new investors as you can create a nice diversified portfolio with relatively little money.
Both the buyback guarantee option and the low minimum investment of €10 were the reasons why I choose Mintos as my first p2p investment marketplace.
And I was definitely not the only one.
As per November 2016 Mintos has 14.870 registered investors which funded an impressive total loan volume of € 83 687 094
Lower your risks with Mintos buyback guarantees
If you are new to p2p lending and investing the buyback guarantees require a little bit more explanation.
Most p2p lending platforms and marketplaces provide unsecured personal or business loans, meaning there is no collateral to back the loan. The platforms use an extensive analysis of each person and business that applies for a loan taking into account many factors the likes of: monthly income, are they homeowners or not, debt history, credit card payment history,….etc. By analysing these factors they create a risk profile and based on that they decide if the applicant gets a loan and for which interest rate. High risk loans offer investors high interest rates but at the same time they have a high chance of defaulting (meaning the borrower doesn’t pay back the loan). As there is no collateral this can mean that an investor loses his invested/lended money. By diversifying your loans over many different loans with varying risks you can lower your risk…and this is what most investors do.
When Mintos entered the market they decided to offer secured loans. Up to that moment this had not been done on a large scale yet in the p2p lending market. And Mintos therefore created a great new addition with these loans.
Buyback guarantee loans will net you, as an investor, less interest than unsecured loans, but it will greatly reduce your risk as Mintos will buyback the loan whenever the borrower defaults on his payment obligations for 60 days or more. In such a situation Mintos will pay you 70% of the original loan contract meaning that the maximum loss you run on such a loan is only 30%. This is a great system that greatly reduces your risk as a lender.
Currently Mintos pays a maximum of 13.5% interest rates for buyback guarantee loans through Mogo, a secured car loan originator. A great return rate for loans that have very limited risk. They are one of my favourite loans to invest in on Mintos.
My first P2P Lending experience: a review of 10 months investing on Mintos
In January 2016 I opened an account on Mintos which was a very easy process. I had to fill in my details and upload a piece of ID for identification purposes but within 3 days I had a functional account. I wired €1000 to the account and started my great p2p lending experiment.
As I was new and wanted to limit my risk I started investing in loans with a buyback guarantee in €10 portions to guarantee make my first p2p lending experience devoid of too much risk.
Mintos has an auto-investment tool that allows you to let them do the investments according to criteria you set. It takes away the manual and time consuming task of manually making offers for each and every loan you want to invest in. And it is completely free and easy to use.
I used the following criteria in their auto-investment tool:
Must have a buyback guarantee
Interest rate between 8 and 20%
Loan term from 1 to 120 months This means short term loans and long term loans up to 10 years. I did this to include some of the mortgage loans offered on Mintos which are always long term loans.
And with these settings I hit the ‘save’ button and Mintos started doing the investment work for me.
When I returned to the mintos website a couple of days later my €1000 had been neatly invested in 100 loans and I was eagerly waiting for the first principal and interest payments to roll in. And this is what happened. Slowly small payments were coming in and I was loving it.
It was very exciting to return to my online account on a daily basis and see that I had received another couple of euros.
For the first couple of months I was always hovering around a return on my investment of aournd 10%. “This is great I thought”. And it was compared to my 0.7% interest rate on my Dutch savings account at the Rabobank.
It was a great encouragement and I decided to invest in some more loans on Mintos. I added a couple of thousand or euros more and devised a couple of new auto investment settings in order to try to raise my return. The biggest change I made was that I changed my minimum required interest rate to 12% in the auto investor and left the other settings more or less unchanged.
And it worked.
Slowly my interest rate crept towards, and eventually surpassed, the 11% net annual return rate.
As I got more comfortable with Mintos I also got more comfortable with taking a bit more risk. I started investing in some higher netting loans of around 15% without a buyback guarantee. On the one hand to diversify my portfolio and on the other hand to increase my total net annual return.
And it worked again.
Now after just over 10 months of investing on Mintos my Net Annual Return is a great 11.28% and it is still slowly rising every week due to the repayments of the higher 15% interest loans.
In 10 months time I have made €303.40 interest on an average invested amount of €3228. (For some months I had €5000 invested but I have lowered this amount in order for me to be able to try out a bunch of other p2p lending platforms too).
I am very happy about this and it has made me very enthusiastic about p2p lending as a savings and investment tool. All in all my first p2p lending experience has been a very positive and encouraging process.
I will soon write more about some of the unique features that I like about Mintos through an in depth analysis of this great platform.