I wrote two days ago about British Web site called Zopa that arranges an unusual sort of peer-to-peer lending. Rather than actually lending money directly to other people at negotiated rates, lenders buy Zopa CDs, which are created through existing credit unions and thus insured against the loss of principal.
A reader argued that Zopa, which is slated to begin U.S. operations next week, sounds a lot more like a traditional bank than a true peer-to-peer outfit such as Prosper.com. “You loan the money to Zopa via a certificate of deposit. Zopa then loans the money out to borrowers. This looks a lot like a traditional bank to me,” wrote Mike.
True, but when I deposit money at a bank or buy a traditional bank CD, I get no say in who gets to borrow the money. Zopa, apparently, lets the lender choose where his money goes.
I’m no banking expert, but the question this arrangement immediately raises in my mind is how it’s possible to get deposit insurance on loans made by laymen. My guess is that Zopa uses some of the huge spread between the interest charged borrowers — up to 16.99 percent — and that distributed to lenders — no more than 5.1 percent — to underwrite the insurance. But that’s just a guess.
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