Tony Hallet writes are silicon.com about setting up with Zopa. This is a useful case study to understand the mechanics of how this novel concept works. He is an Egg customer, and is very comfortable with the company and the model.

Will Zopa’s P2P loans mean the death of the bank manager? – Financial Services – Breaking Business and Technology News at silicon.com

Behind Zopa are some of the people who launched Egg, the internet bank. I have been a pretty happy Egg customer for a number of years and some of the trademark marketing attitude shines through at Zopa.

Turns out Zopa the name came from “zone of possible agreement”. Tony has started off this way:

At the time of writing, I have £1,000 on offer – to be spread across 50 individuals, at £20 per head – at a rate of 8.5 per cent over 12 months. After half a day, I have no takers.

My gut feeling is that I have gone in too high but we shall see.

Mechanics of getting set up:

Getting signed up and jumping through all the joining stages mentioned above took about 50 minutes. And then I hit a wall.

I managed to join, managed to understand how it all works – even managed to smile at the whole “brood of chickens to Africa” thing, and not worry about bird flu. But when it came to putting my money to work, I realised I couldn’t simply put in my credit card details.

Unlike most e-tail websites and even poker sites – a main reference point for me here
– I couldn’t simply use a credit card. I had to either transfer money using PayPal or do an online bank transfer. I don’t have a PayPal account (maybe if I was an eBay fan I would), and so the latter option took me three days.

Starting my stopwatch again three days   later, it only took a further 10 minutes to put my money on the open market. So, in a sense, until I see who takes it and what happens after 12 months, the jury is out.

I’m optimistic – for example, Zopa factors in defaults on a proportion of loans to get the rate you requested. Remember, you aren’t lending or borrowing one-to-one but spread risk across a number of people. As a borrower, £500 I get might come from 25 different sources.

But I also can’t help wondering about my eventual return. For one thing, this is taxed. So my hopeful 8.5 per cent will work out at 5.1 per cent net.

And so I start to think whether it’d be better simply to stick with a cash ISA. Or keep the amount set against my mortgage, where it’s like getting six per cent or so tax free.

And finally some comments on the downside of ventures such as Zopa … time will tell how they deal with this and how comfortable lenders, and borrowers become. What I will add is that eBay took everyone by surprise in terms of the trust factor and how that supported their model, so I would not write anything off at this point.

And that brings me to the matter of who is in the Zopa marketplace. The marketers tell us to ‘come join Basil365, CowgirlJo, Milkmongoose’ and countless others. But I’m not sure Bubbly1, trainman and Big Lender (crap names made up to protect the innocent) are worthy of my hard-earned.

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