SAN DIEGO — With an eye toward adding the accounts of tech-savvy young people and giving strength to the industry's social mission, six U.S. credit unions made the plunge this month into online social networking by hooking up with Zopa Ltd., the British financing firm.

The venture matches borrowers and investors online in a Web linkup typical of popular sites like Facebook and My Space. CUs hope this will eventually produce loan and deposit business as new members come on board.

“This is truly an exciting experiment for us all but one which we think is important because it fits so well into our 'people to people' mission, also allowing us to reach our younger members throughout the world,” explained Mary Cunningham, president/CEO of the $700 million USA FCU in San Diego, in describing Zopa's merging of 'peer-to-peer' networking and online financial services.

How does the system work? Zopa said its borrowers are encouraged to publish a personal profile online that contains details about their situation and the reasons they are borrowing. “That profile is designed to be shared with friends, family, and colleagues via the Zopa web site, other social networking sites like FaceBook and MySpace or a consumer's own blog,” according to the firm.

The six CUs serving as Zopa pilots in the U.S. other than USA FCU include: Addison Avenue FCU, Palo Alto, Calif.; Forum CU, Indianapolis, Affinity Plus FCU, St. Paul, Minn.; First Technology CU, Beaverton, Ore., and Provident CU, Redwood City, Calif.

Like others in Zopa's pilot group, Cunningham said she has no illusions about her CU making much money initially from viral networking in which the borrowers and investors match up through NCUA-insured CDs to provide unsecured loans.

At the same time, however, “the costs are minimal,” she said, maintaining the project clearly demonstrates how CUs are willing to be at the forefront of an innovation which can benefit needy individuals involved in worthy pursuits.

It was unclear after the formal Dec. 3 debut how many other CUs elsewhere would eventually join up but Zopa officials in San Francisco, which serves as the London firm's U.S. headquarters, insisted they received a large response last week from interested CUs.

“We processed all the inquiries we could in a single day after the announcement” said Wade Lagrone, vice president of marketing for Zopa's U.S. operations.

The announcement received media coverage in several host cities, including a Wall Street Journal article mentioning CU participation.

Though the six CUs have been testing the service for several weeks with their own employees and select groups, Zopa said on the first day it signed up 1,000 individuals for the system of which an undisclosed number actually performed the transactions, a requirement for CU membership.

So far CU interest is highest among the West Coast officials. “Our eventual goal–which may take a couple of years–is to enter 50 U.S. markets,” said Lagrone.

Like Cunningham, executives at the other five CUs remain enthusiastic about the venture.

“Zopa provides our members direct access to see who their money is impacting,” said Brian Volkmann, director of real estate services at Affinity Plus in Minnesota. “I think the Zopa project really builds a sense of community and brings alive the 'people helping people' aspect of credit unions.”

Rob Folsom, senior vice president-chief strategy officer at USA FCU, said it was still too early to say when other CUs might join the venture.

“I think they are all watching us to see how we do on the pilot,” he said, a point echoed by Cunningham noting that USA FCU was eager “to be included on the ride” since the idea of reaching a far-flung Field of Membership on military bases was appealing.

“The response from our employees has been great,” said Volkmann of Affinity, though clearly, “this is something that will take time to build,” he added.

Under the Zopa procedure — cleared months ago by NCUA, according to CU officials — potential lenders must purchase the insured CDs handled through the participating CU.

USA FCU said its borrowers will obtain their unsecured personal Zopa loans “at substantially lower rates than credit cards or loans from big banks,” and that the program will also include features that reduce loan payments.

Online Banking Report, a research firm, projected that $100 million in new “peer-to-peer” loans will be issued but it was unclear how much future volume would be handled through the six CUs or by other CUs that might sign on.

Douglas True, senior vice presdent-technovation at Forum in Indianapolis, said formal discussions with Zopa on the Dec. 3 launch have been underway for months but talks originated early in 2006 “as a group of i3ers at Filene began looking at what Zopa was doing in Europe.”

Making reference to the i3 research group at Filene Research Institute, True said some of the members “thought it might be a good idea to have a presentation” and so officials of the London firm via the San Francisco office were invited to a Filene conference in Kansas City.

As it turned out, Zopa has long been trying to establish a U.S. beachhead and since CUs were preferred over banks because of their structure and philosophy, it was decided to gather interested CUs, said True.

Zopa's Lagrone said choosing the six CU partners “was an art and not a science” with future selection of participants based on their being “tech savvy and progressive.”

In the future, Zopa will look for CUs that are “medium-sized, and have a profile that will be successful in our program.” However, “we are happy to talk to anybody,” said Lagrone, “particularly since we've found that partners can view the program in different ways.” Those purchasing a Zopa CD not only become “helpers,” but are also picking at least one borrower to help them. “By adjusting the rate on their Zopa CD, they can increase the amount of help they contribute to their borrowers in the form of a credit towards the borrower's monthly loan payment,” Lagrone added.

Zopa offers two products, a basic share CD and the unsecured personal loan, The Zopa CD is at 5.1% subject to change by the investor with the Zopa loan at 8.71% APR, also subject to fluctuation at the choosing of the investor.

In this way, investors can help other people while still enjoying an attractive, guaranteed, and insured return.

Cunningham said the Zopa program works well for her CU since its FOM reaches military members stationed in Korea and Japan. In addition, the CU expects to sign up members through its 22 branches in San Diego and Riverside counties as well as Las Vegas.

George Hofheimer, chief research officer at Filene in Madison, said he was initially skeptical” of the workings of the existing peer-to-peer lending model run by Prosper Inc. another firm in the field, considering its volume was pegged at a low $60-$70 million. But after testing it himself, he has come around to seeing its possible benefits.

Still, he said, “We just have to watch on the sidelines and see how it all plays out.”

–jrubenscut@aol.com

Instant Insights /

Zopa Claims Interest High in 'Social Net' as Six CUs Debut Pilots

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