Study shows online borrowing and lending offers control and community where the high street banks can’t

The recent evolution of the Internet towards social networking and self-authoring is driving the trend of online Social Lending and leading many internet-savvy Brits to turn their backs on borrowing and investing through the high street banks, a new study has found.

‘Internet-based Social Lending’, an in-depth study* by the Social Futures Observatory (SFO), looked at the growing phenomenon of online Social Lending. Social Lending, now facilitated by the Internet, is emerging as a new financial category of genuine importance. Social Lending is when people lend and borrow money with each other, side-stepping the banks. The study found that the aspects of control, community and individual entrepreneurialism (coined ‘mini-preneurs’ by online organisation linked with the second wave of the internet is driving the re-emergence of borrowing and lending money person to person, cutting out the middle man – the high street banks.

The study looked at a number of Social Lending players, and used Zopa (, the online marketplace where people meet to lend and borrow money, as a case study. Zopa, which was set up by many of the team that launched Egg, currently has 105,000 members in the UK.

Control, community, self-authoring and importantly, positive financial gain, were key elements that people linked with online Social Lending. In the survey of Zopa members, 81 per cent of lenders felt that Zopa offered ‘significant control’, whereas only 4 per cent felt that mainstream financial services offered the same level of control. Zopa borrowers felt the same way, with 70 per cent of borrowers saying they felt Zopa offered ‘significant control’, and only one per cent that mainstream banks offered the same level of control.

Additionally, 74 per cent of Zopa members felt that Zopa ‘greatly’ facilitated self-help and entrepreneurialism while only four per cent felt that high street banks offered these benefits. On the other hand, in the survey of general bankers, almost three quarters felt that their high street bank facilitated only minimal or partial self-help and entrepreneurialism.

According to Professor Michael Hulme, who authored the study, “The development and increasing integration of the Internet into our lives has produced a greater desire for control. Social Lending organisations offer two mains forms of control to members – control of flexibility and control of purpose. The success of Community Lending Sites and the stark contrast with traditional banking lies significantly in their providing genuine opportunities for control, choice and transparency for the participating member. There are echoes here of broader social trends and particularly those round notions of authenticity.”

The community and ethical aspects of Social Lending appealed to general bankers, with 56 per cent stating that the social and interactive features such as blogs and message boards attached to marketplaces like Zopa would be ‘significant’ in their decision to use a Social Lending scheme.

James Alexander, co-founder and CEO of Zopa, believes that people are attracted to Social Lending for both financial and social benefits . “Using the Internet to lend and borrow money through marketplaces such as Zopa, allows people to get a much better financial deal than what’s on offer on the high-street - lower rates of interest for borrowers, and a great return on investment for lenders. But the additional benefits which include much greater transparency, social interaction and control are things that the big banks just don’t offer and are very appealing to people who want to invest in other people rather than in institutions. People are already seeing the benefits – for example, those lending at Zopa have since launch received about a 50% better rate of return on money they’ve lent out than if they’d left their money in the best savings accounts such as ING Direct or Egg.”

Other findings from the study include:

On fairness and finances –
- More than a third of respondents strongly agreed that the big banks aimed to put customers in debt
- 61 per cent said that the main aim of their bank was ‘to make money for themselves’. Only 15 per cent thought that the main aim was to provide a good financial service to its customers, 14 per cent felt their bank’s main aim was to help people manage their finances and a meagre 5 per cent thought their bank’s main aim was to provide a valuable service for society
- Between 43 and 69 per cent of people (depending on which bank they banked with – from a list of high street banks) felt that the interest rate charged on monies borrowed from high street banks was not fair in comparison to the interest rate received on savings and investments.
- Nearly 8 out of 10 people of people who have borrowed on Zopa said that Zopa secures a lower rate of interest than offered by high street banks
- On average, 64 per cent of general bankers said that they had received charges from their principle bank which they felt were unfair or unreasonable

On community, transparency and ethics -
- Only 12 per cent of general bankers thought their bank was sufficiently involved in community projects, and more than 3 out of 5 claimed they were unaware their bank had community projects
- Less than 1 in 10 general bankers surveyed were aware of their mainstream bank’s endevours to enable the disadvantaged to gain access to credit, the development of community projects, environmental and entrepreneurial projects. The largest proportion of people, 29 per cent, claimed that they were unaware of any ethical policies
- ENDS -

For further information or comment, please contact -
Susannah Hardy, Bite Communications on 0208 834 3427 or 07788 405 224 OR Martin Campbell, Beacon Strategic on 01603 211 834, 07802 634 695. Martin can also be reached on the zopa email alias as prior

Notes for editors

*About the study
The study, ‘Internet Based Social Lending: Past, Present and Future’ by the Social Futures Observatory took place over a period of six months. It combined extensive desk research and empirical research consisting of qualitative interviews and two separate independent studies - one amongst Zopa members exploring their attitudes towards Zopa and more mainstream banking, the second survey amongst a general sample of mainstream banking customers.

In total, 1,000 people were surveyed and 20 qualitative interviews took place.

The study is divided into three broad sections. The first helps to trace the more traditional notions of Social Lending and defines the term. The second examines several broad socio/cultural themes underpinning the re-awakening interest and activity in Social Lending. The third is a case study of Zopa.

The complete 116-page study can be downloaded from

About Social Futures Observatory
The Social Futures Observatory is an independent 'think tank' closely associated with the Institute for Advanced Studies at Lancaster University. At its heart lies a philosophy of collaborative, community-based research bringing together a wide range of researchers and practitioners to think about and explore the challenges facing society over the next 10 years and beyond. Supported by multi-disciplinary groups of academics and commentators we work closely with individuals and organisations actively initiating change and operating within changing environments, to help provide clear accounts of what actions taken today may imply for longer term futures.

About Zopa

Zopa is the online marketplace where people meet to lend and borrow money.

Lenders get great returns and borrowers get low-cost loans. With no bank in the middle, both parties get better rates.

Zopa makes money human again - lenders can see where their money's going and borrowers, where their money's come from.

Lenders are enjoying a smart way of getting a return, alongside their savings and investments. Some lenders are earning up to 14% pa, and the average return on all money lent to date is 6.75% pa (figures are before tax, but after bad debt and fee).

Borrowers are finding it a fair and human way of getting a low-cost loan. They are enjoying market-leading rates, with a typical APR of just 5.2% (based on £5,000 over 3 years in the A* market), and the flexibility to repay their loan early at no extra cost.

To protect lenders' money, Zopa uses all the safety measures banks use, plus a few more. All borrowers are identity-checked, credit scored and risk-assessed, and anybody lending £500 or more has their money spread across at least 50 borrowers.

Zopa was set up by many of the team that launched Egg, and is backed by the same investors that backed eBay, Betfair and Skype. Since launching in the UK in March 2005, over 105,000 people have joined.

Zopa was voted “Internet innovation of the Year” at the CNet Technology Awards in October 2006, and in the same month was named by Business 2.0 as 1 of 11 disruptive companies “whose breakthroughs will change everything.” In August 2006 Zopa was given 5 stars from What Investment Magazine, the first time they've given a perfect score in years.

Zopa Ltd is authorised and regulated by the Financial Services Authority as a general insurance intermediary, holds Consumer Credit Licences from the Office of Fair Trading, uses the same processes and fraud prevention systems as banks (including Equifax, Experian and Call Credit for credit rating), and is a member of the Finance and Leasing Association.

Zopa stands for Zone of Possible Agreement. It is the overlap between one person’s bottom line (the lowest they are prepared to get for something) and another person’s top line (the most they are prepared to give for something).

Zopa can be found at

Published on: 12:00AM on 24th November 2006