Need a loan? Skip the bank
Borrowers may pay as little as 5 percent interest on loans via online marketplaces like Zopa, which is preparing to launch in the United States soon.
NEW YORK (CNNMoney.com) -- Cutting out the banking middleman has long been touted as the next big thing for consumer lending.
Now U.K.-based Zopa is coming to the United States, a move that could give the so-called peer-to-peer lending industry a pivotal boost.
Online marketplaces like Zopa directly match lenders and borrowers. Lenders choose the amount of money and interest rate at which they're willing to loan. Borrowers come to the site and check what rates are available. If the rates are to their liking, they can complete their loan with a click.
Another online loan marketplace, Prosper, has been running in the United States since February, but the arrival of Zopa brings one more player to the U.S. market, which will help get the industry on the radar of more consumers, Forrester Research analyst Catherine Graeber said.
Backed by venture capital heavyweights like Draper Fisher Jurvetson, Zopa boasts some 87,000 users in the United Kingdom, and membership is growing at a rate of more than 10 percent a month, according to the company's estimates.
The draw: better rates than traditional banks offer. Borrowers can take out loans for as much as $25,000 and enjoy rates as low as 5 percent. And anyone with anywhere from $100 to $100,000 to spare can lend money and earn returns better than most high-yield savings accounts and CDs.
"I'm drawn to things that take large, seemingly bureaucratic industries and simplify them, and Zopa has the possibility of doing that," said Tim Draper, whose past investments have included Hotmail and Skype.
Zopa doesn't only offer great rates; it also provides a "social experience" for borrowers and lenders, according to Richard Duvall, Zopa's chief executive. Lenders get to see what happens to their money, and borrowers know they're accountable to a real person, not just a faceless bank.
Zopa declined to disclose a specific kickoff date but said its site would be available in California "soon" and that a nationwide rollout would follow that launch.
The next phase of the Web
The timing is right for sites like Zopa and Prosper, which are part of a broader wave of sites aimed at fostering online communities. Social networking site MySpace, for instance, has turned into a Web powerhouse by tapping into teenagers' need to be connected at all times.
Loan marketplaces undoubtedly are about money, but they're also about participation, said Prosper chief executive Chris Larsen, who also co-founded online lending firm E-Loan. "It's the intersection of commerce and community," he said.
Prosper has attracted about 65,000 members so far and shares similarities with Zopa, but it's run more like eBay (Charts) - with lenders bidding on loan pitches made by borrowers. And whereas Zopa only allows those it deems creditworthy to receive loans, Prosper lets its members make up their own minds when it comes to lending to a potentially risky borrower.
These firms are still in their early stages, but they're promising, especially since the consumer lending space is "ripe for reinvention," Graeber from Forrester said.
Both companies acknowledged it'll take time for peer-to-peer lending to take hold, but the addition of more providers in this space bodes well for the industry, they said.
"Other competitors coming into the market will cement the industry in people's minds and make it more likely they would want to try it as lenders and borrowers," Larsen said.