Online social lending communities cutting out banks

Tuesday, 19 December 2006 12:00

Social lending communities on the internet are beginning to emerge as an alternative to bank loans, a new report reveals.

Social lending - when people personally lend and borrow money and side-step banks to get better loan rates and returns than their savings account - is finding a new home online.

One such example studied in the report is Zopa (full story), a website where people can meet to lend and borrow money, set up by many of the people behind the launch of Egg.

The site has 105,000 members, and along with similar schemes on the internet, is proving popular thanks to "transparency and connectedness with others that comes from lending to and agreeing loans amongst like-minded people" along with offering better returns and lower interest charges.

The findings show 74 per cent of Britons would consider getting a loan or lending money through a social lending community, 56 per cent saying the social and interactive features of social lending would be a significant draw to the scheme.

Another 18 per cent find investing in people rather than institutions was a factor in saying they would consider using the scheme.

"For most people banking does not provide any form of rewarding or valued experience it is simply a necessity," said professor Michael Hulme, who authored the study.

"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 chief executive of Zopa, added: "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 per cent 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."

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