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The topic of Peer-to-Peer lending has come up a few times in the last month in blogs and e-mail correspondence from my colleagues. I'll refer you to Doug True's blog if you are unfamiliar with the concept since he first made me aware of the issue in his post.

Zopa, a UK-based company, in particular is championing the P2P lending model here in the U.K. using the internet to facilitate the process and create what it calls "a community of like-minded individuals and lend to them and borrow from them in a trusting but secure way." A new online marketplace. An eBay for savers and borrowers.

Presumably this is a new looming threat to the several hundred year-old traditional banking model. Their goal is to pool individuals savings and lend to other individuals at mutually favorable rates after spreading out the risk among enough people. Sounds good to me. But wait a minute, isn't this the credit union core model and advantage in the financial marketplace? As Doug points out in his blog:

Isn't this the same as credit unions? We take money in for deposit to loan it out, right?

Doug is right. But if this is 'our' model and advantage why haven't we had more success at gaining market share over the bankers? Why hasn't a seemingly superior model completely overturned the system in the last hundred years? Can it be that it will take a for-profit company leveraging technology to champion this concept and bring the bankers to their knees?

I doubt it. Here is why:

Continue reading "Zopa for you? P2P Lending is coming soon...." »

Posted by Scott at 08:10 AM | Permalink | Comments (1) | TrackBacks (0)

"Offset Banking" - Why not in the US?

I recently dropped by the local NatWest Bank branch office. NatWest (part of the RBS Group) is the second largest capitalized bank in Europe and had £196B in total assets at year-end 2004 (the parent RBS Group has a combined £757B in total assets...insane I say!).

While waiting in the branch I picked up a brochure for a product they call "Offset Banking." I had heard of this before from some research Callahan had done a year or two ago on the 'One Account' concept but I honestly didn't pay much attention at the time (sorry guys!).

The NatWest brochure begins with the following pitch:

"Just think how clever it would be if all your different bank accounts began to 'talk to each other' in order to achieve one common goal - to save you time and money when paying back your mortgage."

Okay, You've got my interest but how does it work and where's the catch?

Basically, in the simplest scenario, checking and savings account balances are combined to 'offset' the current mortgage loan balance (for mortgage interest payment calculation purposes only). The interest payments on your mortgage are based on the reduced offset value, not based on the actual higher mortgage balance. For example, if my mortgage is $100K and my combined savings/checking are $10K then I only pay interest on $90K of the mortgage.

As a customer I would have to give up the interest I would be earning on my savings/checking accounts but since mortgage loan rates are typically higher and I've eliminated taxes on interest earned on these accounts this also seems to be a benefit. Since the mortgage monthly payments themselves are fixed, any surplus (interest saved) in a given month is used to pay down the mortgage principal. As a result, in theory, I should be able to pay off the mortgage faster.

Continue reading ""Offset Banking" - Why not in the US?" »

Posted by Scott at 08:17 AM | Permalink | Comments (1) | TrackBacks (0)