Social lending the next Web 2.0 phenomenon - Part I

The Social Futures Observatory and Zopa released a study entitled, "Social lending the next Web 2.0 phenomenon." The study looked at a number of Social Lending players, and used Zopa, the online marketplace where people meet to lend and borrow money, as a case study. Zopa currently has 105,000 members in the UK.

Zopa is based in the UK, while Prosper is currently the social lending leader in the U.S. You can read my brief review of Prosper from the NY Tech Meetup.

The basic idea with social lending is that when you need money, others will pool their funds together and lend them to you at x% interest rate. Prosper uses your credit score to determine your risk rate and then based on that risk rate you bid for the loan with your terms. What makes Zopa & Prosper popular is the "social" aspect; that is you can post your story about why you need the money.  Jane described a woman who wanted a boob job and posted her story and was able to receive the funding even when every bank she tried turned her down. Jane described Prosper as: eBay + PayPal + Match.com.

The report is a worthwhile read, but a bit long at 115 pages. The table of contents include:

• History of social lending - goes back to the 1800s
• Contemporary social lending trends
• Social lending today
• Future for Zopa

Some interesting findings from the report:

On fairness and finances

• More than a third of respondents strongly agreed that the big banks aimed to put customers in debt
• 61 per cent said that the main aim of their bank was ‘to make money for themselves’. Only 15 per cent thought that the main aim was to provide a good financial service to its customers, 14 per cent felt their bank’s main aim was to help people manage their finances and a meagre 5 per cent thought their bank’s main aim was to provide a valuable service for society
• Between 43 and 69 per cent of people (depending on which bank they banked with – from a list of high street banks) felt that the interest rate charged on monies borrowed from high street banks was not fair in comparison to the interest rate received on savings and investments. 
• Nearly 8 out of 10 people of people who have borrowed on Zopa said that Zopa secures a lower rate of interest than offered by high street banks 
• On average, 64 per cent of general bankers said that they had received charges from their principle bank which they felt were unfair or unreasonable

On community, transparency and ethics - 

• Only 12 per cent of general bankers thought their bank was sufficiently involved in community projects, and more than 3 out of 5 claimed they were unaware their bank had community projects 
• Less than 1 in 10 general bankers surveyed were aware of their mainstream bank’s endevours to enable the disadvantaged to gain access to credit, the development of community projects, environmental and entrepreneurial projects. The largest proportion of people, 29 per cent, claimed that they were unaware of any ethical policies

When banks say no, social lending says yes.