UK-based Zopa, the world’s first online person-to-person
(P2P) lending marketplace, launched in the UK back in 2005.
In a bullish interview with
RBI, Zopa co-founder Giles Andrews, says that the
innovative P2P lender – winner of the most threatening bank
competitor at RBI’s Retail Banking Awards in 2008 – is set
to post its first ever profit.
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“We have had profitable months and
if 2011 is not profitable as a whole, we will be pretty close,”
says Andrews.
“In 2012, I expect a profit but if
we trumpet it, people will say how long have you lost money?
“The business is viable and we can
now grow to scale dramatically.”
Zopa’s shareholders have remained
supportive since launch and its private equity backers have
remained unchanged during its initial loss-making years.
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By GlobalDataOf particular pride to Andrews is
Zopa’s loans default rate of less than 0.9%.
“Bankers fall off their chairs when
I tell them we have such low defaults,” he adds.
Zopa’s loans default rate was close
to zero prior to 2008 and, says Andrews, the only period when loan
originations were worse than expected was in the second and third
quarters of 2008, manifesting itself in increased losses in 2009
and early 2010.
Adds Andrews: “We took action and
tightened up our credit criteria and did not suffer as badly as
most lenders.
“We now have over 1% of new
personal loans dispersed in the UK, a milestone as the first 1% was
always going to be the hardest one to get.”
Since setting up shop, Zopa has now
lent about £160m ($256.4m) in total with a record year for loans in
2011 of £70m, up from £50 last year.
Next year, Andrews forecasts that
Zopa’s total lending will exceed £100m.
Zopa’s business model is and always
has been, remarkably simple: connecting people looking for a loan
with people looking to lend, with each party paying a certain fee
to participate.
Currently, the average size of a
Zopa loan is £4,800 with loans typically sought to purchase a car
or undertake home improvements.
Zopa runs a sophisticated credit
scoring engine to help evaluate risk, and borrowing is spread
across a number of lenders to further mitigate risk.
Zopa continues to work with credit
bureau Equifax and, says Andrews, is onto the fifth iteration of
its own scoring model.
“When we launched, we had to run
with vanilla scorecards. As time has gone on, we have refined and
refined and refined and now are onto the fifth generation
scorecard,” he says.
“We take a credit score from
Equifax, together with raw data from the bureau and then apply some
application details which we verify to generate a Zopa score.”
It has however been far from plain
sailing. Zopa set up shop in the US and Italy in 2007 and 2008
respectively but pulled out of the US less than a year later.
And in Italy, after a strong debut
year, a local franchised operation was shuttered by the regulator
in 2009.
Andrews does not however discount
the possibility of future international expansion.
“We continue to watch the US with
great interest,” he says.
“When we set up in the US in 2008,
we took the view that the SECC would not allow us to operate
without registering with a SECC programme which we thought would be
extremely onerous.
“We thought that we could not
launch a business in the US and carry such an overhead as SECC
registration, so we launched in conjunction with the credit
unions.
“But the operation was only
operating rather obliquely as a peer to peer outfit and did not
capture the consumers’ imagination in the way that we hoped and of
course we started in the face of a credit storm.”
Subsequent events, namely the
regulator shutting down US-based P2P lenders, proved Zopa to be
right but Andrews believes that US regulations may become more
friendly towards P2P lending.
“Our investor base is part American and I think would be keen to
be back in the US,” Andrews adds.
