Last Saturday I was fascinated – and surprised – by a BBC Radio 4 programme, with a hard-hitting title that I could not have imagined just a few years ago: “Broken Banking.”

The BBC’s “iPlayer” website introduces the programme as follows:

“Big British banks are widely accused of damaging the economy by failing to support their customers. Michael Robinson reports on initiatives to do without banks altogether.

With peer-to-peer lending, borrowers and lenders are matched directly through sophisticated websites promising better returns to investors and cheaper loans to borrowers. Could such direct contacts form a significant part of the future financial landscape? At least one senior Bank of England official thinks it might.”

The programme talked about two such lenders: Zopa for personal lending and Funding Circle for business loans.

I’ve written before (LINK) about this peer-to-peer idea, i.e. “cutting out the middle-man” as we used to say back in the day. Just in case you missed it, here’s that LINK again.

The key question is: how can both investors and borrowers get a better deal? The answer lies in a word: spread.


If you were planning an overseas holiday, have you noticed those ads for “no commission” foreign currency; and wondered “how can they do it? How do they make their money?” Well, you know that Thomas Cook, Travelex, etc are not charities; nor is your friendly high street bank, of course.

They all make their money on currency from the difference between the rates at which they buy and sell currency, i.e. the “spread”.  For example, if you ask your bank their latest tourist rates, there will be selling rates at which they sell you Euros, dollars etc; and also buying rates for any you bring back. If you work out the difference as a percentage of the buying rate, that’s the spread and that’s how they make their money. If they charge commission as well, that’s a bonus for them (or maybe I shouldn’t use that ugly word nowadays). Maybe they’ll say “commission-free” as an inducement, because they can make enough money on the spread.


Exactly the same thing happens, of course, when banks take in deposits and grant loans. The “spread” between their deposit rates and their lending rates, (or between the rate at which they can borrow in the money market, the now-notorious LIBOR, and the rates they get on loans), is a major part of their income. It’s what would be called margin in most businesses. Fair enough; the banks have to generate margins to sustain their services. But then I got a shock.

According to this BBC programme, the AVERAGE spread at UK banks in mid-2007, just before the credit crunch, was 2%. By 2009 it had risen to 7%.

“That was a rise of over 5%”, the presenter said, but that greatly understates the case. Yes, it was five percentage points, but it was an increase of 250% on the 2007 figure, if I’m not mistaken … in just two years.

This year, the average has dropped to a more “reasonable” 6%. That’s still a rise of 200% on the 2007 spread.

In the clamour for greater transparency about banks’ account charges, the spread figure is another (and probably much larger) area on which the public is mostly in the dark.


What’s the connection with peer-to-peer lending, you may ask. Peer-to-peer lenders simply put two parties in touch, and never handle the money, so they take a commission for the service, instead of a spread. That commission, according to the BBC, averages 1%. Yes, you read it right: 1%. That’s why the borrower and the lender can both get a better deal.



For BBC iPlayer, to access the Radio 4 programme, click here:

(Note: most programmes on iPlayer are available only for a week or two but this one is apparently available until 1 Jan 2099!)




A while back I wrote about “peer -to-peer” lenders, which were starting to be popular with both investors and borrowers, although their market penetration is so far small. The best-known one in the UK is Zopa, at least for personal borrowers.
According to an article by Lucy Warwick-Ching in the Financial Times, there is now a new one, focussing on lending to small businesses. Here’s an extract from that article, with my comments. See below to reference it in full from the FT site.

What’s the deal? is an online peer-to-peer lending service enabling investors to make loans to direct to businesses.

Businesses seeking funding pay a listing fee of £450 to upload their information. Potential lenders decide whether to participate in an auction to lend to that company. (Kind of Dragon’s Den, eh? Ed.) If they do, they set the interest rate and the amount they’ll offer. A syndicate is made up of the bidders offering the lowest rates.

The minimum bid is £1,000, but the most common loan is around £5,000. (Clearly for pretty small businesses: Ed.)

Is this good?

With ThinCats, lenders set their own interest rates. Some have achieved rates of 15 per cent in recent months, but 8 per cent to 11 per cent is more likely as the marketplace for these loans matures.

Lenders are not charged a fee and it is up to ThinCats to chase any outstanding payments. (This is a USP, if it works: Ed.)

What’s the catch?

The company is young, so it doesn’t have much of a track record. Loans are secured (key info! Ed.); if a business falls behind with payments, ThinCats would call in the loan security. But investors’ money is not as secure as it would be in a bank account.

What’s the alternative?

ThinCats follows on from the success of other peer-to-peer lending sites such as and; but it is the first to offer secured loans.

(and the first, as far as I know, to target small businesses in search of funding, as distinct from individuals: Ed.)


Peer-to peer lending

Link to reference the article

“Back to the Black”: my eBook on managing debt

To sample or purchase this debt advice book (£0.70 / $0.99):


This month’s edition of the “Moneywise” magazine carries a supplement showing all the winners (and losers!) in their annual awards for service and trustworthiness. At a time when banks, and the financial services industry in general, have had many knocks to their corporate reputations, any good news is good news, if that makes sense.

Here is my totally unscientific extract, i.e. the awards that interested me most. And don’t worry, if you don’t subscribe to Moneywise (which is very good value; and I am not on commission!) you can access the info online; scroll down for the link.

In summary: First Direct dominated the awards, winning many categories. There were also awards for several organisations I’ve mentioned on this blog: Zopa, Yorkshire BS and Coventry BS.


Current account provider:

Winner: Smile. Highly Commended: First Direct. Trusted Providers: Clydesdale Bank, The Co-operative Bank, Nationwide, Yorkshire Bank

Credit card provider:

Winner: First Direct. Highly Commended: John Lewis. Trusted providers: Co-op Bank, M&S Money, Nationwide, Tesco Bank

Mortgage provider:

Winner: First Direct. Highly Commended: Coventry Building Soc. Trusted providers: Britannia, C&G, HSBC, Nationwide

Savings provider:

Winner: First Direct. Highly Commended: Coventry Building Society. Trusted providers: Britannia, Nationwide, Post Office, Yorkshire Building Society.

Personal loan provider:

Winner: Zopa. Highly Commended: First Direct. Trusted providers: Nationwide, NatWest, Sainsbury’s Bank, Tesco Bank

Overall “most trusted” provider: First Direct. Highly Commended: Nationwide.


In addition to the “most trusted” awards, there are also six service awards in each of 15 categories: go to the link below for details.


The magazine also named and shamed the outfits with the worst record. Sadly, out of seven categories, Santander came out worst in five and worst equal (with Halifax) in a sixth.  Moneywise got an interview and an apology from Steve Williams (Santander’s Director of Service Quality, not the Bristol West MP of the same name)



Awards details

For the full lists of all the Moneywise awards (winners, Highly Commended and shortlists / “trusted providers”) in all categories, with info on the survey’s  methodology; plus contact details for the companies they endorse (but not for those they name and shame!), go to: LINK

“Back to the Black”: my eBook on managing debt

To sample or purchase this debt advice book (£0.70 / $0.99):


A while ago I blogged about the new(ish) peer-to-peer lending websites, such as Zopa, the largest in the UK. I also said I’d be looking into the matter further.

So I decided to read what the established financial journalists (the people who are paid for their expertise) are saying.

I’ve looked at a few of them, following the principle of Lobachesvky, who famously said: (according to the legendary Tom Lehrer): “To steal from one source; that’s plagiarism. To steal from many: that’s research.”

Firstly, I’ve learned that Zopa stands for the “Zone Of Possible Agreement” and its aim is to cut out the middleman by putting lenders and borrowers directly in touch. The site acts as a facilitator and makes sure debts are repaid.

“Personal finance just got a whole lot friendlier”

In an earlier post on this subject I mentioned Maryrose Fison’s article with the above title (January 2011) in the Independent. See below for a link, as it’s still on their website. Here’s my inexpert précis of what some other writers have said.

Rosie Murray-West, Daily Telegraph

She says that “(new-style) Peer-to-peer lending websites and old-style credit unions have been major beneficiaries of public anger against the banks, seeing a huge level of growth in 2010.

“ …Zopa … allows ordinary people with savings to lend them out at an average rate of 8pc and has now lent a total of £110m. Its rising popularity has led to four new peer-to-peer lenders being created in 2010, and the industry is now working on becoming properly regulated and establishing a code of conduct.”

Credit Unions

“Meanwhile credit unions, which are co-operative organisations offering affordable loans and accounts without bank charges, have also grown.

A spokesman for ABCUL, the credit union association, said the amount of savings in British credit unions had risen by 27% in the two years to March despite the fact that many British people were struggling to save in the current economic climate. The number of new members of credit unions rose by 18.4% in the same period.

“Mark Lyonette, ABCUL’s chief executive, said that Credit Unions continue to grow as more and more people seek a fair and affordable alternative to the high street banks. He added that if the Government made good on its interest in making credit unions accessible through the post office network, there was the potential for many more people to join them.”

Martin Lewis’s ‘Money-Saving Expert’ site; opinions on Zopa

The ‘MSE’ site was sceptical about Zopa at first. But now they are saying that under certain conditions, it makes sense. As of today, the site’s view is:

“… for those with a good credit score, there’s an alternative. Zopa is a unique internet marketplace which couples people who want to lend with those who want to borrow. On application it gives you a credit score, and if you get its top A*, A or B ranking, you can borrow.

Loan rates vary daily and are determined by the amount needed and length of borrowing. For A* or A grade credit scorers wanting cash over 36 or 60 months, it can beat some loan rates, particularly on smaller amounts; currently, 9.6% APR is available for loans of £4,000, for example.”

View of a Zopa customer

By way of a change from the financial journos, here’s a quote from an actual Zopa borrower. (5 July 2011)

“Just thought I would let you all see my finished kitchen :o) All tiled and just about back to normal now. Thank you all to those who have helped me pay for this, you have no idea how happy I am it’s finally been done! :0} xxxxxx”

Editor’s note (that’s me): there is a video on Zopa’s Facebook page too but I’m not able to reproduce that, because I haven’t done the training course to insert video.

For your guidance, their loans are apparently mostly for the purpose of home improvement (like the above), cars or debt consolidation.

Moneywise “Most Trusted” awards

… and finally, I must congratulate this peer-to-peer lender for having achieved an important award. According to Moneywise magazine, Zopa is the UK’s Most Trusted Personal Loans Provider 2011. This was for the second year running and was against a shortlist that also included First Direct, Nationwide, Tesco Bank, Sainsbury’s Bank and Natwest.


1. For Rosie Murray-West’s article from the Daily Telegraph:

2. Peer-to-peer lending: how to choose the right site by Emma Simon. (also in the Telegraph)

3. For the article in The Independent by Maryrose Fison:

4. For the Money Saving Expert site and newsletter signup:


For a free sample of my book, “Back to the Black: how to become debt-free and stay that way”:

Kindle format:

Other e-formats, including .pdf:

You can follow me on Twitter: @michaelmac43, on Facebook: Michael James MacMahon, or on Linked In.



I recently attended an excellent conference in London, on Facebook marketing. Somebody, I can’t remember who, made the claim that “Facebook will at some point become the world’s biggest bank”. I didn’t know whether to believe that. However, I did hear many presentations at that event from entrepreneurs apparently earning serious money through Facebook and other online resources.

What I didn’t hear that day, but I know now, was that hundreds of individuals now lend money to each other through Facebook. “Cutting out the middleman”, we used to say; and Facebook is facilitating it. I came across this interesting fact while trawling through my “newspaper cuttings awaiting reading” pile and found an article by Maryrose Fison in The Independent. It was a couple of months ago but no matter.

Debt rescheduling / consolidation / relocation?

People who are concerned about their debts often ask advisers if they should look for ways to move the debt elsewhere, for example through a debt consolidation loan. The pros and cons of that route have been discussed many times so I won’t go into it here, except to say that the general advice is always to avoid this kind of loan if it has to be secured against your home.

A zero percent balance transfer is another way of getting “free” credit. Even allowing for the fact that there’s always a fee of around 3%, it’s cheap money, provided your credit record is clean enough to get it.

Borrowing money from individuals, however, is something that was new to me; except, of course, for friends and family, who are often a source of funds from which debtors make offers to their creditors for “full and final settlement”. However, this new trend is borrowing from individuals who are total strangers.

Here’s an extract from what Ms Fison said:

“As hundreds of thousands of Britons struggle to get a foot on the property ladder, with banks continuing to crack down on new lending, social networking applications have become a lifeline. Who would willingly choose to pay through the roof for an unattractive loan package when there are millions of social network users gagging to lend you their money for less?

“The average rate of interest on a loan at the Lending Club over the past 36 months has been 9.22 per cent. On Zopa, the typical APR on a loan of £5,000 over three years is 8.3 per cent, and on Funding Circle a £15,000, three-year loan has an APR of 9 per cent -well below the 12 per cent a typical bank would charge.”

That sounds attractive, although there are lending offers on the market nearer 9% than 12%; some of them were listed on the same page of the paper under “best buys”. The issue, again, would be whether one’s credit record would be good enough to qualify. A private lender would also need reassurance but might be more flexible than a bank, as they are getting a relatively high return (much better than the high street, anyway) on their money.

Facebook apps

You’ll note that Ms Fison (excuse my formal mode of address: I’m old-fashioned and I’ve never spoken to her, though I shall be following her on Twitter from now on) mentioned The Lending Club; she says it was one of the first applications to be added to Facebook in 2007. She also mentions Zopa:

“UK-based social lending service Zopa is another provider, and the number of communal lending and borrowing sites with applications on social networks is growing at a staggering rate.”

Ms Fison concludes:

“Social networking applications may still be in their infancy, but given the popularity of personal finance and online peer lending, their influence on our day-to-day activities looks set to take off this year.”

Well, there is nothing to be lost and lots to be gained by investigating this further. I’ll certainly be doing some research into peer lending sites: watch this space!


For a copy of the full article in The Independent by Maryrose Fison:

For a free sample of my book, “Back to the Black: how to become debt-free and stay that way”, go to:


Other e-formats, including .pdf:

You can follow me on Twitter: @michaelmac43, or Facebook: Michael James MacMahon.