

Don't just howl with rage. Try an idea that does away with banks altogether. - SwellJoe
http://www.guardian.co.uk/commentisfree/2009/aug/18/bankers-bonuses-credit-zopa

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furyg3
So, let me get this straight.

You give your money to Zopa. Zopa divides it up into chunks and combines it
with money from other 'lenders' and gives it to borrowers (which it has
performed credit checks on). The borrower pays a fee, a part of which is given
back to the lender. Also, if someone defaults Zopa goes after them.

How is this not a bank?

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patio11
It doesn't make money. Banks do that (well, prior to the recent financial
crisis).

See Prosper, incidentally, which had lending peers decide which loans got
funded and at what rates. If you think BoA was bad at estimating default risk,
wait until you see the average Prosper portfolio.

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RyanMcGreal
_It doesn't make money._

Reminds me of classic SNL skit _The Change Bank_. "How do we make money?
Volume!"

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brc
This is an article which uses the popular 'hate the bankers' line to try and
show something new.

I don't think the bankers with the big bonuses are going to get worried
anytime soon. Banking is not really about personal loans and microfinance. If
anything, banks do these things to keep customers coming in the door. The
really big banks, the investment banks of the world, don't even do mortgages,
because there's not enough scale. 50 million in loans isn't even the skin
cells on the pimple on the bum of international banking. Until peer-to-peer
finance can build a house, shopping centre or a bridge, I don't think those
multi-million dollar bonuses are in any danger.

This is a bank, just with lower overheads and accordingly lower margins.

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mediaman
Thank you -- I see a lot of people thinking 'banking' is all about your
personal small loan from the neighborhood bank. That's like a tiny slice of
the tip of the iceberg.

Most banking takes place in volume, it is done through personal contacts, and
it requires substantial knowledge and background in banking to do. Anyone who
has ever managed a significant line of credit, term loan, or more
sophisticated instruments used by larger businesses knows that you cannot just
replace it with some peer to peer model.

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silentOpen
This tiny slice is important. Disruption of industries starts at the bottom
and the margins. Finance's lunch will be eaten by the internet or one of its
successors sooner or later.

It could be argued that the mortgage market meltdown was only possible with
modern computational and communication technology so in some sense, the
disruption is already happening -- the i-banks couldn't keep their newly
possible hyper-risk under control.

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sokoloff
Important or not, this tiny slice isn't going to "do away with banks
altogether"

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silentOpen
They even admit as much in the article... the headline was crap but thems the
times we live in :-(.

Think about a credit card company that makes a credit line marketplace...
consumer banking will see major shifts in the next decade (wild predictions!).

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huntse
A lot of the bank-bashing you see in the press is purely based on
misconceptions of what banks do. The truth is that for small person-to-person
loans of this type credit unions (and that's pretty much all Zopa really is by
the way-a fancy-pants credit union with a website) have always been able to
lend on lower margins than banks.

Now come to me when your credit union can give you a $50mm letter of credit to
cover a shipment of goods from Brazil to China. In Portuguese and Mandarin,
please, because the supplier and customer both want to see it. See, banks do
all kinds of things that most people don't know or think about.

They get paid for doing something people want.

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biohacker42
I think the only thing that's kept credit unions from doing that is size. If,
and this is a huge IF, a credit union like Zopa can grow sufficiently large,
it could do it.

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fatdog789
No, they couldn't, without violating their fiduciary duties to the other
members of the credit union.

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jorleif
These kinds of startups have an advantage for small loans, but for larger ones
the "real" banks that don't have to carry all the money they lend (fractional
reserve banking) have quite an advantage. Also, in a system where people loan
directly from each other the money supply is constant. That's bad if you want
economic growth, and I suppose, good if you're an environmentalist.

If you want to do away with banks you would have to somehow do away with the
fractional reserve system. Any ideas on how to do that?

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ThomPete
Well

Things have to start somewhere. A new "financial system" will have to grow
naturally to create any sort of stability, that is based on the trust in the
system. And mind you your bank adviser is not really an adviser but a
salesman. If you want advise on money use Mint.com.

There is nothing that hinders this kind of thinking to scale.

Microfinancing shows that there are money to be made in decentralizing where
the money comes from and where they go to. It fit's perfectly into the "spread
your investments" that seems to be the most stable.

To add to that, I actually think the future will bring much more small to
medium sized companies than necessarily large organizations so it seems to be
the right way to approach it.

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proemeth
Zopa acts here as a credit agency: they evaluate the borrower's
creditworthiness but the lenders keeps the credit risk. What is their
incentive to do this assessment thoroughly, and how are they going to get
their credibility?

The idea of cutting overhead costs is good though, like you see with online
banks. Credit unions (not for profit) can be another solution to avoid banks.
It is very popular in Ireland for instance.

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movix
Would this work better for niche financial markets - like angel investing for
instance?

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electromagnetic
I know something much, much better. It's called a wall safe, hide it somewhere
no one will see it and you're golden.

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onreact-com
Bankers and government officials work together on this so don't really expect
each other to bite the hand that feeds them.

