Zopa goes State Side with Federal backing (allegedly)

According to report at Techcrunch, Zopa, the peer-to-peer lending platform is to launch in the USA. However, the major element of the annoucement that caught my eye was that Zopa claims that the loans would be Federally insured and hence, if true, the credit risk element would be effectively be stripped out but the rates could continue to attract personal lending rates (less the Fed insurance premium that I'd anticipate would be deducted from the rate by the platform).

This would be likely to attract serious funds, since the deemed rating on these would be AAA as USA Govt backed loans. As such this could become a popular asset class, especially if the value of each lenders insured amount on the platform weren't be capped. Why is that notable? Well for a start, if you ordinarily deposit with a bank, you are only covered up to $100k. But if you instead deposited with Zopa, all your deposits would be covered by Fed guarantee whilst still attracting decent interest. Secondly, high net worth or institutional investors might place deposits on the platform as part of their bond allocation. Whilst these loans couldnt be traded or collateralised, they would be secured and attract a reasonable return on the asset and at a premium to T-Bills even though the risk is the same.

The same Techcrunch article highlights that
According to the research firm Online Banking Report, around $100 million in new P2P loans will be issued this year, mostly by Prosper, with new loans growing to as much as $1 billion in 2010 and $9 billion in 2017. Prosper already registered an S-1 with the SEC and reported $96.4 million in loans.

I think the supply of funds could go way beyond that and directly compete for business with money funds. In the USA, assets in US money market mutual funds hit $3,031bn this week according to iMoney.net, with $13.38bn of new monies in the week ended 27 Nov.


posted by John Wilson @ 8:35 PM Permanent Link newsvine reddit


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