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Hail the new breed of lenders giving the banks a run for their money

Alternative lending is having its moment in the sun, but can these young upstarts really shake up the banks?


by Michelle McGagh on Aug 15, 2012 at 13:49

Hail the new breed of lenders giving the banks a run for their money

Trying to borrow money at the moment may seem like a fruitless task for many who are stuck between stingy banks that want DNA samples before even thinking of lending to you and shouldering extortionate charges levied by payday lenders.

With these two unappealing propositions to choose from, isn't it time for consumers and businesses to look for alternative ways to borrow money?

With scandals engulfing our banks since the financial crisis including multi-million pound fines (I’m looking at you Barclays) and reports of widespread mis-selling over a decade (hello, RBS, Lloyds, HSBC and Barclays again), it’s no surprise that the backlash has begun.

The friendliest face of a different sort of banking has to be Dave Fishwick, a minibus millionaire from Burnley who set up his own bank in 180 days with the aim of lending to his local community and offering decent rates for savers.

Fishwick also donated the profits from his ‘Bank on Dave’ operation to local charities after covering costs. He wanted to bring ‘hard work and common sense’ to the banking industry, which is sorely lacking.

But he isn’t the only one with ideas on providing alternatives to the big high-street lenders.

Many people have heard of Zopa, which was set up in 2005 to match-make those people who have money to lend and want to make a bit of profit, with those who need to borrow. To date, £224,235,120 has been loaned through the company.

Funding Circle is the equivalent of Zopa for businesses. Having been open since 2010, it has so far loaned £44,552,060.

The amount of money that has been borrowed shows the appetite for alternative lending is huge, while operations of this type are gaining credibility.

The latest contender to enter the fray is which claims to be the ‘world’s first social network financial institution’. Confused yet? This lending website matches investors and start-up businesses but instead of relying on credit scores it evaluates potential customers on their social media ‘capital’ – basically online presence, number of friends and followers, plus good reviews equals a good credit score.

Before you shrug the idea off, keep in mind that it's got Sir Richard Branson's blessing and has made it into the top 50 of his global Virgin Unite Screw Business As Usual competition.

As unorthodox as this seems, it is marrying together online lending with the 21st century maxim that you’re not anyone until you’re someone online.

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16 comments so far. Why not have your say?

Rob Walker

Aug 15, 2012 at 16:19

I seem to remember another 'New breed' of lender challenging the banks a few years back. There included Bradford and Bingley, Northern Rock, Alliance and Leicester, Halifax and a few more. Enough said?

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Chris Clark

Aug 15, 2012 at 16:23

Yes Please! Any new bank to rid us of the scourge of Natwest, HSBC, Barclays and Lloyds who are nothing but zombie banks is 100% encouraged by me.

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Vague Shot

Aug 15, 2012 at 16:58

I'm a Zopa investor and have generally got upwards of 5% before tax in the five years, I've had money with them.

What is needed tio compliment , those such as Zopa, is a money holding and transfer company, to handle my money, without trying to sell me products I don't need.

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Murdo McSponge

Aug 15, 2012 at 17:00

These all sound great - BUT!! How long before we start hearing lots of "Nobody told me there was a risk!" stories.

Until a certain kind of lender and borrower learns what commerce is all about, there will continue to be "sob stories" of people getting taken for a ride. That's why I am convinced that basic economics and finance need to be taught in schools. All pupils need to write out 500 times: "The rate of interest is indicative of the level of risk. If you are lending, high rates of interest indicate a high chance that you will lose your money; if you are borrowing, ordinary borrowers don't get low interest! Ordinary lenders and borrowers get screwed!"

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Ian Phillips

Aug 15, 2012 at 17:11

Now let me see if I understand this..........if I'm up to my neck in debt, not working and spend my time sitting on my *ss and have managed to accrue several hundred "friends" on Facebook then there's a "New Lender" out there who will lend me money??......Sounds great........ where do they get that money from? pretty gullible investors??


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Stephen Doyle

Aug 15, 2012 at 18:58

The 3 providers Zopa, Funding Circle and RateSetter have set up a P2P organisation to keep quality high. They are the only 3 members so far. They all have escrow accounts for lenders' money to separate it from their own business. RateSetter also has a reserve fund for bad debts. I use all 3 and have no complaints with any of them. As they have got bigger, the rates they offer to lenders get a bit lower, as you would expect. I have stuck with low risk borrowers or companies and have spread my monies over many individuals to lower the risk.

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Rose G

Aug 16, 2012 at 09:27

I was once happy to use the post office account to hold my money but it was sold off to Alliance & Leicester, which is now in Santander's hands. Alliance & Leicester were ok until I decided to open a new account with another bank and then they really screwed around not acting on my request to close my account and transfer information to the new bank which now held my account. To date, I still get post from Santander regarding my old accounts with A&L, and I read & bin them as I no longer use those accounts.

The overall trend is the concept that bigger is better and we have been proved wrong time and again but the psyche of those who make policies & contrue strategies for the financial markets is such that they are blinkered, always looking to make a big splash and this is where it has got us.

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Rose G

Aug 16, 2012 at 09:58

it has got to the stage where people consider that the banking fraternity is corrupt, they have always chased after profits even if this infringed on the rights of those who they exploit. Why then are we surprised that they think we are all mugs waiting to have their hard earned wage be taken from them in various disguise.

At one stage most of the money I was earning went to the banks because of using credit offered me.

I have now wised up, paid of my debts, have only one debit and credit card and will not take up the many offers of credit. Young people who may not have the experience us older ones have, are now in their majority living from one pay day to the next, live off overdrafts, and thus fulfil their use to the banks, who ensure that nearly every penny of your hard earned wage will be theirs!

It is not just the banking fraternity we need to castigate but their buddies the politicians who are in love with multiconglomerates, and the sexiness of the city of London seems to overpower and unman them! Even Gordon, that dour Scotsman fell prey to their power and seemed to believe in their magic and believed he had some of their magic - what a bloody fool he turned out to be, announcing no boom and bust followed by the most traumatic events for this generation who had never experienced austerity.

While the ordinary Jane & Joe Blogg have been informed that they will not have pay rises, some may not even have a job, and while we are facing the most difficulties in making our budgets stretch further, the banking industry can announce multi-million dollar losses in one week, and share their good news that their senior staff who were in charge at the time of the losses, are in line to get their multi million dollar bonuses for their mis selling, cheating, not regulating for money laundering - no bank has faced the prospect of losing their licence, so why do we expect them to start modifying their behaviour when they are being rewarded for failing?

We hold the world of big corporate finance is awe, and that is the problem. The politicians rely on these scumbags to fund their campaign and in return they expect their pound of flesh, which was the complete and utter chaos in the banking sector.

Small businesses are struggling, and when interest rates finally go up, families will be losing their homes, while the banks themselves will enforce repossession until the next lot of wide eyed clients invest their money in foolhardy schemes that ensure the next batch of financial fledglings get their bonuses while investors seem quite happy to pay people to defraud others.

I do not see how the end will come about, but end it will, I hope sometime soon!

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Aug 16, 2012 at 11:12

Dear Ross G.


Inflate those debts away.

The end

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Aug 16, 2012 at 11:16


will take circa 15-20 years.

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arthur death

Aug 16, 2012 at 14:21

only "invested"in funding circle in march & april 2012-already have 3.77% ln noyation and furthur three in default

from the comments they do not appear to go into background or put pressure on early defaults

perhaps i am unlucky or perhaps the banks caution in lending is justified-time will tell!!!

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Aug 16, 2012 at 17:18

Have had a toehold in ZOPA for 2 years now, returns 5%+ and no defaults but as it is spread over 100 borrowers I don't expect any significant risk.

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Aug 19, 2012 at 09:09

What is "noyation" in plain English?

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Russell Barnes

Aug 22, 2012 at 09:12

P2P lending should definitely come with a health warning: about 95% of the the returns I have made on Funding Circle have disappeared in bad debt, usually by defaults or bankruptcies suspiciously early in the life of the loan. With 2 years still to run on the loans, I am likely to end up with bad losses.

Maybe it's just my bad luck, though an investor friend has found exactly the same.

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graham stewart via mobile

Aug 29, 2012 at 18:06

I have a property portfolio of 27 properties in north with a profit above lloyds loan of aprox 800k ,so have a proven track record over many years of buying and renovating property as I am a trade builder ,lloyds have tried in every option to force me to sell down assets or take me out of business ,by increasing charges or dirty business to the point were I can not lend no more from them to develop with .I now us private investors individuals or other business and give them a share in profits and name on property title ,but it is hard to find them ,I make a proven profit on all developments of 22% to 30% latest one a investment of 125k returned 225k this best one yet .I buy rest homes derelict buildings pubs and turn into new homes or flats .so I welcome a whole new lending stream ,otherwise the banks would have made a killing of bankrupting me ,by cash starvation ,but I played them at there own game legal crooks lloyds etc ,now I move forward and make money for my investors and my self ,any one interested in investing get in touch I would be pleased to talk and prove my credibility u won't look back

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Vague Shot

Aug 29, 2012 at 18:37

My old friend and bank manager, who rose to be Business Banking Director of Lloyds would be turning in his grave, if he hadn't been cremated. The takeover and ruination of Lloyds by Prudence was the worst piece of government in the last few years. If you're healthy, you don't eat poisonous food. RBS and HBOS should have been thrown to the wolves!

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