Future of consumer credit?

A couple of “new style” credit (loans) businesses that match private investors (lendors) and private borrowers, thus dis-intermediating the bank:

1. Prosper.com
2. zopa.com
3. A facility on FaceBook called “Lending Club”.

Two questions…

1. Will the current issues in the credit markets and rising interest rates cause the traditional lenders to tighten up their credit approvals and allow the above platforms to poach customers?

2. Will the above platforms be around in 5 years?

YES | YES – Zopa.com – as this appears to have a more robust business model

YES | NO – propser.com – is a bit too skewed toward the sub-prime lending market (look at the profiles) and the turmoil that it is going though. I would guess that the sub-prime borrowers will shift their risk onto these platforms once the banks and sub-prime lenders start saying “non”. I do question if the lenders are attracted by the rates they can get away with and are blinkered to the true risk profile of the borrowers.

YES | UNSURE – “Lending Club” , will look deeper.

Also, if anyone knows how leveraged these businesses are, can they let me know. For example, in a traditional bank, for each deposit of $1 the capital adequacy requirement allows lending of around $4. Does the regulator allow these businesses to do this or is there a 1 to 1 relationship between a $ invested and a $ lent? let me know…


~ by Nigel on June 29, 2007.

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