Internet Changes Everything

Social lending over internet cutting out the banks

Social lending over internet cutting out the banks | 24dash.com - Bill Payments

New study shows that Brits are looking for an alternative to high interest rates – Social Lending over the internet

Big banks watch your backs - the British public is looking for an alternative, with 74 per cent of Britons stating they would consider either getting a loan or lending money through a social lending community, rather than their high street bank, according to a new study.

While the study found that people who used high street banks thought they were necessary for general everyday banking, 49 per cent stated that they feel that banks do not have their customers' best interests at heart, 81 per cent agreed that the banks are self interested and 76 per cent strongly agreed that the banks are greedy.

'Internet-based Social Lending', an in-depth study by the Social Futures Observatory, looked at the growing phenomenon of Social Lending.

Borrowing and lending money person-to-person, rather than through a bank is an age-old concept, but in the past has normally taken place in private – through friends, family or other close-knit social groups. Social Lending, now facilitated by the Internet, is emerging as a new financial category of genuine importance. Social Lending is when people lend and borrow money, side-stepping the banks in order to get better loan rates and better returns than their savings account, and a fairer deal for everyone.

The study found that Social Lending is growing in popularity, much like other social networking sites that have seen huge growth with the likes of LinkedIn, YouTube and MySpace.

The reasons for this are due to the increased transparency and connectedness with others that comes from lending to and agreeing loans amongst like-minded people. Just as importantly, it offers people strong financial benefits – higher rates of return on investment for lenders, and a lower rate of interest than is offered by banks for borrowers.

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, which was set up by many of the team that launched Egg, currently has 105,000 members in the UK.

According to Professor Michael Hulme, who authored the study, "Traditional Banking emerges from this report as almost some form of necessary evil. For most people banking does not provide any form of rewarding or valued experience it is simply a necessity. In contrast to this the Community Sites we looked at appeared to offer a much deeper appreciation of the individual that went far beyond the actual transaction."

James Alexander, co-founder and CEO of Zopa, believes that not only are people looking for a better financial deal, but also for a way to make their money human again.

"We've seen a strong return to ethical values in recent times, with many of us concerned about the impact we, and the organisations we deal with, are making on the community we live in. Lending and borrowing money from real people online, through marketplaces such as Zopa, allows people to get a much better financial deal than what's on offer on the high-street.

"People are already seeing the benefits – for example, those lending at Zopa have since launch received about a 50% better rate of return on money they've lent out than if they'd left their money in the best savings accounts such as ING Direct or Egg."

According to the survey, 64 per cent of people who use high street banks felt it was important that their banks provide a service that enables social interaction and community participation, yet only 13 per cent felt their bank significantly enabled either of these things.

Additionally, 56 per cent said that the more social and interactive features of Social Lending would be a significant factor in their decision to use a Social Lending scheme and 18 per cent stated that investing in people rather than institutions would motivate them to use Social Lending marketplaces such as Zopa.

December 26, 2006 at 09:57 PM in Financial Services | Permalink | Top of page | Blog Home