Over the weekend the Financial Times reported that Jacob Rothschild, the man who three months ago made a $200 million (£125 million) bet against the euro, has acquired a stake in Zopa, a peer-to-peer (P2P) lending company.
The investment banker used his London-listed RIT Capital Partners trust (LON:RCP) to buy in on the UK-based Zopa – a lending company which allows its clients to extend credit to each other without needing banks as mediators. The firm is part of a fast-growing industry that has begun to eat into a business traditionally dominated by banks. “We are witnessing the growth of the non-banking lending market,” Lord Rothschild said as quoted by the FT. “Following the 2008 crisis many of the banks remain under capitalised,” he added. “In these circumstances alternative forms of credit will be developed on a significant scale. This is happening.”
Lord Rothschild has not revealed the size of his stake but it is know that he acquired it through Augmentum – a technology fund with RIT Capital as its sole investor. According to Tim Levene, head of Augmentum, Zopa’s revenue has been growing at more than 55 percent per annum. The post-crisis environment and the growing distrust in the banking sector have pushed people towards alternative means of lending and borrowing.
Companies such as Zopa and RateSetter offer UK citizens personal loans, while others including Market Invoice and Funding Circle provide funds for businesses. People can also buy equity stakes in small and medium-sized companies through firms such as Crowdcube and Seedrs.
**Lending Growth at Zopa**
!m[Zopa and other P2P Lenders Chip Away at Banks’ Loan Business](/uploads/story/991/thumbs/pic1_inline.png)In November Zopa announced that its peer-to-peer lending has expanded to more than £250 million or a 90 percent increase from the same period last year. “Passing the quarter of a billion milestone way up on just a year ago proves that increasing numbers of people are looking beyond the banks to find the best savings and borrowing rates” said Giles Andrew, Zopa’s CEO and co-founder.
Mr Andrew also pointed out that his company offers responsible borrowers, who have a good credit rating, lower rates than the banks’ and no early repayment penalty. Lenders on the other hand can enjoy an average fixed rate return of 5.4 percent, after defaults and charges have been deducted.
In December it was also revealed that the City’s new watchdog – the Financial Conduct Authority (FCA) will begin to regulate P2P lenders. The lack of regulations has put off some lenders because the cash they offer is not protected by a depositor’s safety net, as it usually is in an investment fund or deposit account. According to the Telegraph starting next year P2P lenders will be regulated but they still will not be included in the Financial Services Compensation Scheme (FSCS).
“The regulator’s mandate is to ensure regulated firms conduct themselves in the right manner and to offer appropriate protection to consumers.” said Rhydian Lewis, chief executive of RateSetter. “Its mandate is also to promote competition, and the emergence of peer-to-peer offers precisely that…Government has recognised the importance of peer-to-peer finance for consumers, and understood our potential to rival mainstream banking in the future,”