Essay on a Contemporary Issue in Financial Services

On a Contemporary Issue in Financial Services - Essay Example The loan departments in banks are charged with appropriately calculated loan risk and lending cash on a much higher charge as compared to what is statistically essential. In response, banks double dip by charging a risk taking premium for depositors.  Banks assure deposit returns in return for a discount.  This spread amid deposit interest compensated and loan interest charged equivalents to much of a bank’s revenue (Macneil & O’Brien, p.66). A Web 2.0 company that is attempting to upset the banking industry is ZOPA in the United Kingdom. Peer lending websites, like ZOPA (2011), intimidate the conventional banking model. These websites link conventional depositors with borrowers. These websites let depositors to turn into direct lenders and agree to risks usually received by bankers as well as project entrepreneurs. By presuming a little amount of risk, investors can get much higher returns. ZOPA also has a risk assessment department like a loan sanction department in a bank. For a little amount of added risk, depositors can receive more than 8 percent as compared to 1.5 percent on a CD or 4 percent on a treasury of 10 year (UK Government Decontamination Service, p.25). ZOPA (2011) was established in â€Å"London during March 2005, and by the end of January 2007, it had 40 workers as well as 105,000 registered member users including lenders and borrowers. ZOPA sets up more than 100,000 US Dollar in loans on a daily basis†. ... The standard project funds return on investment is more than 30 percent. Nonetheless, the majority of individuals can not access angel ventures or project investment. Websites like ZOPA (2011) exist in the middle of conventional banking and venture investment. They let standard individuals to guess some banking risk and create large profits for the problem (Reuvid, p.90). ZOPA (2011) is leading the ‘person to person’ lending model in the U.K. by means of the Internet to smoothen the process and produce what it describes â€Å"a community of like-minded individuals and lend to them and borrow from them in a trusting but secure way† (BPP Learning Media,, p. 66). ZOPA is a latest online market and an eBay for savers as well as borrowers. Apparently, this is a latest alarming danger to the quite a lot of year-old conventional banking models. Their objective is to group people’s investments and lend to other individuals on reciprocally approving charges subseque nt to spreading out the risk between adequate numbers of people. ZOPA is really innovating by creating the current conventional CU saving and lending procedure more clear for the end member or user and by leveraging the inexpensive Internet medium. Securing the Loans ZOPA ensures the conditions of borrowers by carrying out a credit rating research by the use of Experian, Equifax, or any alike corporation; by going through the borrower’s eBay ranking if it is available; by going through borrower’s profile provided that it is available online; by permitting only one account for each borrower; and by checking the chance of identity theft by a borrower by raising queries regarding previous borrowing, demographics, and so on (Finaccord Ltd, p.10). Additionally, ZOPA recommends lenders to