Well, as morganist says, it's called ZOPA (an unfortunate name, but there you have it). I think it's pretty cool and I am a lender there. They also used to offer the direct peer-to-peer intermediation service, although I am not sure they're still doing it.
I don't see the OP ever asking a question about why the spread has increased. Methinks you need to read the post more attentively. In general, it's not that simple. It's one of the reasons, but it's not the only one. There's a whole variety of things happening in the mkt.
He asked why there was a disparity in the lending and the borrowing interest rate. The spread, which has increased. I merely explained the reason for this and why it has increased recently. In any event it is related imo.
I just looked at the website - didn't spend too much time on it so if you are familiar with it, feel free to correct my points below. At a glance thoughts: Looks like the avg default rate is around 3% p.a. Assuming zero recovery rate, the credit spread should be 300bps. Let's assume a 4Y term (the website says 3-5Y terms, so I'll take the mid) - 4Y GBP swap looks like is around 1.7%, so 4.7% is around the risk-neutral fair value. The website says its blended lending rate is 6.8%. So, that's a spread of around 210bps over the risk neutral rate. At first glance, not bad right? BUT - there's counterparty risk. Is ZOPA's credit spread tighter than 210bps? Probably not (I doubt it's large enough to have CDS traded on it). So, doesn't look like a good place to park cash from a strictly investment perspective? Martingoul, you are thoughts are welcomed here.
The issue I had with them if I can remember. Is that the amount they lend out to people is small (I think it was fifty or five hundred pounds, it might have changed) which meant that the cost of chasing default was higher than the loss of letting it go. That is not a problem with a low default rate however I think it will rise and could be problematic.
i know couple guys,who tried prosper for like year or so. they ended up basically flat. have to add that they where lucky enough to do that in 2006-08 period. and yes,their approach was serious,they did not just piss the money away and lend to anyone. 1)too much screening work. 2) liquidity. it's pretty hard to do lend six figures without taking significant risk. that was their opinion. personally, right now,in current environment i would not lend anything to anyone.
Yeah that is what I feel. I am considering starting my own private bank. Old style a lock up somewhere with valuable assets inside. Perhaps a collaboration like shared volt in a bunker or something. I have been thinking about an alternative pension, like a tontine with people I know and trust, that way I get security and diversify my investment.