Zopa

Zopa is a new social lending site. Zopa UK has been around for a while, and Zopa US is about to launch. (I'm on their email list, and got to do a bit of beta testing.)

I'm a lender at Prosper, which is working out OK so far, but I don't have much faith in management. At Prosper, the problem for lenders is estimating the likelihood of default, so the emphasis is on diversifying, choosing borrowers wisely, and getting compensated adequately for risk.

At Zopa, the lender buys a CD, insured by the NCUA. Zopa then lends the money out to borrowers. Zopa handles the diversification, and (with its credit union partners) assumes the risk.

Zopa requires that borrowers have a FICO score of at least 640, which drops out the bottom 25% of the population. The current CD rate is 5.10% for 1 year, which is not bad. I have a CD at GMAC Bank, which is currently offering 4.50% for 1 year.

Zopa borrowers can post their sob stories, and Zopa lenders can "help" them by diverting part of their interest to the borrowers' payments. This is the social part of social lending. For example, a lender with a $1000 5.10% CD could reduce his interest to 4.10% and allocate the extra $10 per year to help specific borrowers. It is possible that a borrower with a good story could get a free loan.

It's nice to see some competition for Prosper. Zopa has a completely different business model, and will attract different borrowers and lenders. There's no reason they can't coexist. Personally, I can't get too excited about Zopa, but the next time I'm in the market for a CD, I'll consider them.

By the way, ZOPA is an acronym for "zone of possible agreement". If a borrower is willing to pay as much as 10%, and a lender is willing to accept as little as 9%, then the range from 9% to 10% is the zone of possible agreement. If there's no ZOPA, there's no deal.