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Are peer-to-peer lenders the future of banking?????

This article titled “Are peer-to-peer lenders the future of banking?” was written by Josephine Moulds, for The Observer on Saturday 9th June 2012 23.01 UTC

“Never lend money to friends or family,” the saying goes. But how about complete strangers? Websites that match up borrowers and lenders are enjoying a new wave of interest after a series of high-profile endorsements.

First came Andy Haldane, executive director for financial stability at the Bank of England, who said peer-to-peer lenders could eventually replace high street banks. “At present, these companies are tiny,” he said. “But so, a decade and a half ago, was Google. If eBay can solve the ‘lemons problem’ [substandard products] in the secondhand sales market, it can be done in the market for loans.”

Then the government said it would channel £100m to small businesses through alternative lending channels, including peer-to-peer lenders, hoping to bypass the mainstream banks, which are reluctant to lend. The news caused a flurry of excitement among the few established players in the field, including Zopa, for personal loans, and Funding Circle, for small businesses.

These websites act as a kind of broker between lenders and borrowers. The idea is that without expensive branches and the weight of regulation, they can offer better rates to both sides. For a loan of £5,000 over three years, Zopa certainly comes out cheapest on moneysupermarket.com, offering 7.3%. And it says lenders on the site can expect returns of 5%-5.5% after fees and bad debts, which beats most easy-access savings products out there. The model is, however, not without risks

full article at source: http://stateofglobe.com/2012/06/10/are-peer-to-peer-lenders-the-future-of-banking/#more-3759

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