By Katie Ledger

Reporter, BBC Click



Pouring your cash into the far reaches of the world wide web may sound like a crazy idea.

Lending cash to others online can cut out the middleman

After all, the internet has seen its fair share of nasties from phishing e-mails posing as a bank to key logging software pinching our passwords and personal information, all in an effort to steal our identity and cash.

But now there is a wave of sites trying to convince people that the web is the place for their money.

The concept is called social lending and the idea is to introduce people who need money to people who want to lend some - cutting out the middlemen like banks and mortgage companies.

Zopa is a pioneer in this space. For the past two years it has allowed members to borrow and lend on their own terms.

Alison Daniel is an HR Advisor at a magazine publishing company who was looking for a loan to pay her overdraft.

"I looked at my bank and other various banks where I could get a loan and then I heard about Zopa, went on to their online calculator and the rates came up really cheaply so I opted for Zopa," she said.

The site itself is very easy to use. After both the borrower and the lender have registered, they choose what rate at which they would like to borrow or lend. If the rate they choose corresponds then the site brings them together.

You do feel a connection to the people you are loaning to

Jane Bennett

Lender, Kiva

But how trustworthy is the site and will lenders get their money back?

James Alexander, CEO of Zopa says they do everything they can to minimise any risk.

"We risk assess, identity and credit check every individual that comes to Zopa," he said. "So it's a community of known individuals and what Zopa does is connect these people so they can borrow and lend money on their own terms."

To minimize risk Zopa will spread your loan among a few borrowers. So if are lending £500 ($993) then your money will automatically go to 50 different people.

Banker to the poor

So think of Zopa like eBay for money, and like eBay, there are still risks involved in trading. But social lending is not just for people looking for a material gain, it can also be an easy way to give a helping hand to those most in need.

The social lending site Kiva allows lenders to give to a specific entrepreneur in a poor or developing world country.

Social lending enabled Angel Isaev to start a cycle business

One person who has been helped by the site is Angel Isaev from Bulgaria.

Two years ago, he decided to open up his own bicycle repair business after losing his job at a local shop that closed down. And to make this dream come true he needed cash.

"At the beginning I was a very, very poor boy," said Mr Isaev. "Then I was told about Kiva, and with their help I was able to fulfil my dream; I was able to prove I'm a businessman."

For a minimum loan of $25 (£13) Kiva allows people to sponsor a business by choosing from thousands of cases detailed online.

Mr Isaev's lender Jane Bennett says an attractive feature of Kiva is that she can see who she is lending to.

"There are certainly occasions when I am looking to see who I am going loan money to and I would like to loan to them all because it is just amazing to see the stories of these people and how they are getting on with their lives," she said.

"You do feel a connection to the people you are loaning to and I think it is because you see a picture of them and find out a bit about their life."

Throughout the period of the loan - usually six to 12 months - sponsors receive e-mail updates about how borrowers are getting on as they repay their loan.

This sort of scheme is generally called Microfinance. It is not new, but the web's ability to allow anyone to become a banker to the world's poor certainly is.

Currency exchange

And the web is also turning other established financial models on their head, such as currency exchange.

FXA World is the world's first peer-to-peer currency exchange where you can trade your foreign currency at a rate that you have set or at the rate the banks trade among themselves.

The site will offer you two options: Instant Challenge will give you the best rate available from a peer at any given time, or you can place an eBay-style listing where you can choose your rate and wait for someone else who is happy to trade.

Sites like this give more choice to users in deciding what they do with their money.

So, is social lending set to be the next big thing?

"They are what we call a niche mass," explained social lending expert Professor Michael Hulme of Lancaster University.

"In other words, it is likely that there will be a growing market but not a market that replaces financial services and high street banking and stuff like that."