Zopa

Twitter Post Raises Speculation About Zopa Introducing a Secondary Market

wiseclerk

This twitter post caused some speculation that Zopa UK is working to add a secondary market to the p2p lending service. I didn’t contact Zopa management asking to comment on this for I believe they probably would neither have confirmed nor denied plans on a secondary market.

As discussed before the issue with offering a secondary market isn’t the technical or commercial implications, but to find a model that is in compliance with regulation.

For Debate: Can Data from Social Networks be Used to Reduce Risks in P2P Lending?

wiseclerk 7 Comments

P2P Lending is mostly anonymous and loans are unsecured. To make the risks of lending to a stranger acceptable for lenders, p2p lending services had to provide models for the lenders to judge the dimension of the risk of not getting paid back.

The initial estimation of the risk-level could not come from the platform itself as it had no track record and could not build a model that “calculated” the level of risk involved for the lender. The consistent consequence was that nearly all p2p lenders relied on established third party providers for credit history data and credit scores. Prosper for example showed Experian data on default levels to be expected depending on credit grade.

Over the time it became obvious that the actual default levels at Prosper were much higher than the expected default levels based on Experian data. We don’t actually need to argue here what led to this (be it financial development of the economy, be it that p2p lending attracted bad risks, be it a poor validation process), but the result was that since defaults were much higher than expected, lender ROIs were much lower than expected at the time of the investment.

And this is not Prosper specific. Several other p2p lending services show clear signs that default levels will (or have) surpassed the initially published percentages of defaults to be expected based on external data.

Boober failed due to default levels, on Smava levels are higher than the Schufa percentages fore-casted, same is likely for Auxmoney defaults which will be higher then Schufa and Arvato Infoscore data suggested. The one exception from the rule is Zopa UK, which successfully manages to keep defaults low, as CEO Giles Andrews rightly points out.

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US P2P Lending Regulation Might Ease

wiseclerk 3 Comments

The House of Representatives yesterday passed a bill that will move regulation of p2p lending services from the SEC to the newly created Consumer Financial Protection Agency (CFPA) in Spring 2010, provided the Senate and President Obama approve the new legislation.

Oversight by the SEC meant that Prosper, Lending Club and other p2p lending companies in the US had to go through an arduous registration process in the past, which forced them to close for new business for several months. Zopa even decided to exit the US market.

Prosper CEO Chris Larsen welcomed this development, saying: “In terms of how the Bill relates to peer-to-peer lending, we’ve always believed that the industry should be regulated as a bank-like sector by a strong, holistic regulator focused on providing robust protections for both lenders and borrowers…”.