August 06

Martin Fagan, Editor – What Investment

Internet to kill high street?

Have you ever heard of the three-six-three rule of banking? It's quite simple: pay savers 3% before tax, charge borrowers 6%, and be on the golf course by 3pm!

The urban myth goes that banks employ the "3-6-3" rule: take money in as deposits at 3 per cent, lend the money out as loans at 6 per cent so the manager could be on the golf course at 3pm. Money for old rope – and it always has been.

Which is why, if I were a bank manager, I'd be slightly worried by Zopa. I'd been hearing rumbles of Zopa last year, but it's only recently that the rumour has crystallised into hard fact, or at least as hard a fact as something on the internet can be.

So, what's Zopa? Well, in a nutshell, Zopa allows people with spare money to lend it directly to people who want to borrow it. No bank in the middle, no huge overheads, no unethical investments. To minimise any risk, the money each lender puts in (over £500) is spread among at least 50 borrowers (and likewise each borrower gets their money from a number of different lenders).

All lenders and borrowers enter into a legally binding contract with their respective borrowers and lenders. Zopa manages the collection of monthly repayments, and if any of that money is not paid on time, uses exactly the same sort of recovery processes that the high street banks use. Zopa earns money by charging lenders and borrowers a 0.5 per cent fee.

Could Zopa turn out to be the ebay of banking? Good question.

As a confirmed adherent to online shopping – which now includes my car insurance – for huge chunks of my consumerables and as someone who thinks ebay came from nowhere to transform how some of us shop, perhaps Zopa will change how some of us save.

Martin Fagan