More and more people are finding you can bank on peer-to-peer lenders

My Week

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The Independent Online

By chance I had two meetings in the diary this week that, in their own way, went to the heart of what is wrong with our banks.

The first, on Monday, was with Giles Andrews, the founder of Zopa. That’s the peer-to-peer lending and borrowing market – people go on the website, say they’ve got cash to lend, and others borrow.

It really is not much more complicated than that. In 10 years, said Mr Andrews, Zopa has been responsible for £670m of unsecured loans to 110,000 people.

The money has come from 60,000 lenders, who on average are putting up £5,000. Currently, they are getting returns of 4 per cent over three years and 5.1 per cent over five, after Zopa has taken a 1 per cent cut. While Zopa’s borrowers are over 20 years old, UK residents for three years and earning at least £12,000 per annum (typically they’re on £30,000 to £40,000), the risk of default is slightly higher than at a bank. But defaults, said Mr Andrews, amount to less than £1m of that £670m.

Zopa is enjoying growth of 50 per cent to 100 per cent a year. “Our biggest competitors are the big five British retail banks,” he said. But while people still go to banks for personal loans, their service is so poor that Zopa is proving more and more popular. At present, Mr Andrews added, “we’ve got 1.5 per cent market share. We could be 10 times bigger than that.” Zopa’s success is yet another example of the large banks moving away from the little man – a policy they may one day come to regret.

Banks’ problems with rogues 

That lofty approach was illustrated vividly on Wednesday when six banks, among them HSBC and Royal Bank of Scotland, were hit with penalties of £2.6bn for rigging the foreign exchange market. A seventh, Barclays, is still in talks over the size of its fine.

The banks will say the scandal was the result of rogue employees. But the question they should really be asking is how did the manipulation occur in the first place, and what was the culture that encouraged the traders to behave in such a fashion?

Why worse things don’t happen at sea

As, hopefully, they beat themselves up over where they’ve gone so wrong, the banks should consider a small book. Called Royal Navy Way of Leadership, it distils management lessons absorbed and honed over hundreds of years by one of the best-run organisations in the world.

Written by Andrew St George, who lectures in business, it is marvellous. Four years ago, he was asked by Royal Navy chiefs to interview personnel from the most junior ranks to the most senior, and put down their thoughts. The resulting work was intended for internal consumption, but has now been published.

“The Royal Navy understands how to get the best out of people without using money and bribing them,” said Mr St George when we met. “The service has faced enormous cuts, yet standards are just as high. It’s about getting more with less – about not shouting at people but using soft leadership skills and a moral centre.”

Everyone, he said, “knows what is expected of them and they do it – without rules, compliance officers and supervision”. 

Bank chiefs, buy his book, read his words and weep. 

Who wants to enter a tax-avoidance jungle?

Two sets of people are in the Brisbane area this weekend. One lot poses constantly, smiles incessantly, spouts nonsense, and pretends to get on with each other famously, while indulging in bouts of back-stabbing. The I’m a Celebrity competitors on the other hand…

Of course, the G20 summit is a much more important gathering than the latest series of the TV “reality” show. Nevertheless, they both display a similar disconnect with reality. One of the key issues for discussion by the world leaders is tax avoidance. David Cameron, we’re told, is determined to bring it to the top of the agenda.

This would be the same Prime Minister who has singularly failed to make any significant headway with tax avoidance, who runs a country that counts among its dependencies several of the world’s most aggressive tax havens, and actively promotes Britain’s appeal as a low-taxation regime to wealthy foreigners to encourage them to settle here.

He will be joined in venting his moral outrage by Barack Obama. That’s the President of the country that loves to claim it’s tough on tax. One of those states is Delaware, which is home to hundreds of thousands of corporations from all over the globe, including the UK. They don’t register there because it’s a world commercial hub, but because it offers low tax rates. In 2012, an investigation found that more than 200,000 firms were registered behind just one address in Delaware.

Joining Messrs Cameron and Obama will be Jean-Claude Juncker, President of the EU. The European Commission is determined to crack down on the tax bullies – those mega-corporates that channel their profits through low-tax centres while leaving the EU nations where they really do their business bereft.

A leading light among those specialist destinations is Luxembourg. Documents have been revealed showing how it professes to embrace tax transparency but reaches secret deals with multinationals anxious to take advantage of its generous taxation regime. Mr Juncker was simultaneously Luxembourg’s prime minister and finance minister. The European Commission is so furious about the contents of the 28,000 pages of leaked material that it’s ordered an investigation. Presumably, they can save time by asking their boss, Mr Juncker, what he knows.

One group in Australia will deceive the watching public into believing they are taking part in sessions requiring courage and stamina. The other gang will have the Bushtucker Trial.