Zopa
Zopa is a British-based company providing an online money exchange service, allowing people who have money to lend it to those who wish to borrow, instead of using savings accounts and loan applications at traditional banks. The process is sometimes referred to as peer-to-peer lending. The name, Zopa, stands for Zone of Possible Agreement, a negotiating term identifying the bounds within which agreement can be reached between two parties.
Launched in 2005, Zopa was the first P2P lending company and acts as the man in the middle, facilitating the loans process. It was set up by a management team that comprised many of those that founded Egg in the UK. The company is based in London and backed by Benchmark Capital and Wellington Partners.
Zopa operates within the United Kingdom, Italy and a service is being developed for Japan. Each geographical area operates a slightly different model.
In 2006 the Social Futures Observatory published a study titled Internet Based Social Lending.[1], which seeks to understand the antecedents of Social Lending, drawing parallels with Friendly Societies, and using Zopa as a major source of case study material.
Variously likened to eBay and Betfair in the UK press, Zopa is an addition to the emerging group of peer-to-peer services enabled by the internet. Prosper is a similar service based in the US.
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[edit] Zopa by country
[edit] Zopa UK
There are two different systems called "Markets" and "Listings". Customers can be a "Lender", a "Borrower" or both.
In Markets the potential borrower is graded by risk from their credit report from Equifax. The five risk bands are A*, A, B, C, and since late July 2008, Young (specifically for borrowers aged between 20 and 25, who are prohibited from using the other Markets, but not Listings). After initial online credit checking those borrowing from the Markets also get full underwriting checks by humans and many applications are rejected by the very strict checks at this stage. There are two loan periods available, 36 months or 60 months. There have been terms of 6, 12, 24 and 48 months previously although these markets were removed in an attempt to simplify for both Borrowers and Lenders and facilitate adding other specialised markets like Young.
The system will match money from Lenders who are prepared to offer their money to potential Borrowers as a function of the risk and loan term, hence the name Zone of Possible Agreement. Matching is done on a many-to-one basis, so that each Lender's loan is spread across many Borrowers, thus reducing the effect of any defaults.
In Listings the potential Borrower is able to state their reasons for wanting to borrow money, along with their preferred interest rate and repayment period. Lenders offer funds to the potential Borrower in a reverse-auction where the lowest interest rates win. The Borrower is then able to accept or reject the loan. Borrowers from Listings undergo the same underwriting checks as Markets borrowers, with the exception of an Affordability check (though a system of stars is provided for lenders to assess this)[2].
For Borrowers the loans are very flexible, allowing variation of monthly payments and early repayments without penalty. For Lenders, their money is committed for the duration of the loan, with no way to exit early unless the borrower chooses to repay early.
The bad debt risks are taken by the Lenders, and priced into the rate offered to Borrowers. If a Borrower defaults, the debt is normally sold to a debt collection agency and Lenders will be paid a portion of any money recovered. Zopa Markets applicants have slightly worse credit profiles than the UK average but the very strict underwriting and possibly the human to human lending and benign economy have resulted in very low default rates, well below the estimates used by Zopa.
Both Borrowers and Lenders are charged fees by Zopa. Zopa charges the borrower a fixed fee of £124.50 for each loan (whether from Markets or Listings). Before 6 April 2010 this fee was £118.50 and prior to 5 April 2008 the fee was a variable 0.5% of the loan value. New Lenders currently pay an annual fee of 1% of the amount lent, which is deducted monthly from the Lender's account. The Lender fee was 0.5% for lenders who joined before August 2008. Founder Members are exempt from the Lender fee.
In times when the Bank of England base rate is above 0.75%, Zopa also pays Lenders interest on the balance in their holding accounts. The holding account interest rate is equal to the Bank of England base rate - 0.75%, with a floor of zero. The interest is paid monthly.
As a result of the credit crunch of late 2007 and 2008, interest rates charged by Zopa lenders rose, proving the system is responsive to prevailing lending and borrowing conditions.[3]
[edit] Zopa US
Zopa launched in the US in partnership with six Credit Unions on December 4, 2007 but it closed to new business on October 8, 2008 due to Zopa's concern that the bad debt rates of new Borrowers could potentially rise beyond acceptable levels as the economic situation deteriorated in the US.
The US model was significantly different from that elsewhere due to regulatory restrictions. Customers could be "Investors" or "Borrowers".
Borrowers could obtain a loan via Zopa from one of the Credit Unions. Borrowers would then post a profile on Zopa giving some details about themselves.
Investors bought a Zopa Certificate of Deposit. Investors were able to help Borrowers by offering them a slice of the return on their CD, reducing the amount of interest the Borrower had to pay. If enough Investors helped a single Borrower then all of their repayments could be covered.
[edit] Zopa Italy
Zopa Italy runs a very similar model to that of Zopa UK, with the exception that the fees to Borrowers are a function of their risk. On July 10, 2009, Zopa has been written off from the italian financial brokers register by the Italian Ministry of Economy and Finance, on indication by the Italian Central Bank. Zopa Italy has suspended new admissions but it is still managing existing loans.[4][5]
[edit] Zopa Japan
This section is currently under development.
[edit] See also
- Prosper - a similar service based in the US
- Lending Club - similar service based in the US
[edit] References
- ^ Bingley and Wright (2006-10-01). "Internet Based Social Lending" (PDF). Social Futures Observatory. http://www.socialfuturesobservatory.com/pdf_download/internetbasedsociallending.pdf. Retrieved 2008-07-05.
- ^ savaroony (April 17, 2008). "What checks do Zopa's underwriters do?". Zopa Talk. http://talk.zopa.com//index.php?showtopic=2397. Retrieved 8 June 2010.
- ^ Staff article (2008-03-26). "Feature: Are rising Zopa interest rates an opportunity or a time-bomb?". Monevator. http://monevator.com/2008/03/27/are-rising-zopa-interest-rates-an-opportunity-or-a-time-bomb/. Retrieved 2008-03-27.
- ^ "Il Tesoro cancella Zopa dall'albo [Treasury writes Zopa off the register]" (in Italian). Repubblica. 2007-07-14. http://www.repubblica.it/2009/07/sezioni/economia/zopa-sospesa/zopa-sospesa/zopa-sospesa.html. Retrieved 2007-07-14.
- ^ "Comunicato Stampa: Zopa.it sospende le attività in seguito alla cancellazione dall’albo degli intermediari finanziari [Press Release: Zopa.it stands by all activities following cancellation from financial brokers register]" (in Italian). Zopa Italy. 2007-07-14. http://blog.zopa.it/wp-content/uploads/2009/07/14lug09_zopa_standby1.pdf. Retrieved 2007-07-14.
[edit] External links
- Interview with James Alexander, Zopa co-founder, on peer-to-peer lending
- Audio interview with Zopa founders - a podcast recorded in April 2005
- Text interview with Zopa founders by IT Week published in June 2006
- Credit Scoring benefits lenders and borrowers by SAS Institute published on 26 May 2007
- CEO Douglas H. Dolton Interview, Social Networking Watch, July 2008
