Last night, Zopa made the 6 O’clock news on the BBC (watch the video here). If you’ve been reading this blog for a bit, you’ll know that I think that Zopa and Prosper are fundamentally in a position to change the way that the business of banking is done.
I’ve made the point that the key thing that will hold back both of these sites is getting enough lenders to make sure that all the loans are funded. According to Deutsche Bank research, only 30% of loans are fully funded on Prosper.
Clearly, mainstream television coverage can only help Zopa get more lenders.
But then I noticed this little announcement on the Zopa blog yesterday:
Capital Guarantee product for lenders
This might be a couple of days later (We’re awaiting final regulatory clearance, but the system is all built) – but we’re delighted to be able to offer an insurance product for lenders that guarantees your money back – no matter what happens with bad debts.
We know this won’t appeal to all our lenders, but we think that the option of a totally secure Zopa (subject to a small insurance premium) will make Zopa attractive to a new segment of consumers – which will benefit all Zopa members.
Whenever I’ve tried to explain Zopa and Prosper to people – especially those who aren’t bankers – I’ve always run into the wall of explaining how the sites distribute the risk of the loan across multiple borrowers. Obviously, I am either a very bad explainer or this is a concept too bankery for the layman (personally, I lean towards the former).
With a capital guarantee option, Zopa neatly sidestep the issue of bad debts.
It will be interesting, however, to see if layering the cost of the premium into the deposit will actually reduce the return to a level which is close enough to the top rates of the high street banks for it not to matter any more.