Savers, Investors, Crowdfunding and Risk-Taking

responsible risk-taking is the key to happiness and prosperity

Millions of UK savers lend money to SMEs, and who benefits? The banks. Peer-to-peer lending puts more of the wealth in the hands of borrowers and lenders, but also more of the risk. How do we persuade people that the risks are worth taking?

Earlier this week we heard much excitement about the ‘Banking Small Businesses’ report, which made some serious and far-reaching recommendations for improving the relationship between banks and the 'real' economy' that banks exist to support. The Federation of Small Businesses (FSB) called on its members, and the banks who lend to small businesses, Customers deserve far more transparency about loan contracts, and the lending options available to them. to support the initiative, which it said would improve  

Banking is full of inefficiency and friction, which is why banks get rich, even when their customers don't. But borrowers are not the only customers who deserve a better deal. We also need to think about where the money comes from: the savers.'d like to look at the people who put up the money that the businesses borrow.

Yesterday, we reported on a new report about changing banking to meet the needs of business borrowers. Today, we want to look at look at the people who put up the money so businesses can borrow. They might be on the opposite end of the deal,  but lenders have more in common with borrowers than they realise.

When you keep money in a savings account, the bank makes loans to other people with your money. And when the loans make a profit (which is almost every time), the bank keeps the profit, and passes very little on.  

Peer-to-peer lending offers a better deal for borrowers and lenders. But according to an article published today by This Is Money - Savers more interested in security than interest rates - savers aren't looking for better deals. 

The survey of more than 2,000 savers was conducted by Aldermore Bank. It discovered that security is more important than earning a higher rate of interest. 

"With some pouring life savings into accounts, often in smaller firms rather than the high street big names, 92 per cent state the most important element is knowing their money and personal details safe."

There seems to be a big psychological difference between savings accounts and shares. Savers haven't recognised that they have a common cause with borrowers.  And that, we think, is going to hold back the alternative lending revolution.

What can peer-to-peer lenders do to get the message across, that P2P lending is a third option? It's less risky than playing the stock market, but it's not the copper-bottomed ultra-secure savings account, which offers you no risk, and almost no reward.

The survey does offer some clues about this. This is Money again:  

"A third of respondents would still consider using a savings provider not covered by the Financial Services Compensation Scheme, if it meant the opportunity to secure higher interest rates on their cash."

Younger people also feel differently than the middle-aged and the retired:

"When it comes to seeking higher returns in a low interest rate environment, nearly one in five 18-34 year olds would consider riskier savings and investment products which offer higher rates of returns but less protection, compared to only five per cent of over-55s."

Another Crowd would like to see more money going to fund Britain's small business.  We'd also like to see more of the proceeds of successful loans going to the customers who put up the money - instead of being absorbed by an intermediary  

Savers are lenders, and borrowers and lenders should be on the same side. The challenge for us is to try and improve the quality of the conversation.