Zopa
Encyclopedia
Zopa is a UK
-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 peer-to-peer
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 entitled "Internet Based Social Lending", 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 and P2P Financial
is a similar service based in Canada.
A potential borrower is graded by risk by the credit reference agency 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 have not yet established a credit history). 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.
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, though early exit is possible in certain circumstances using a system known as 'Rapid Return' to transfer loans to other lenders.
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. Zopa publishes bad debt forecasts as well as actual outcomes, which reveal that outcomes are generally better than forecast but loans issued in 2008 (a time of economic crisis) experienced bad debt at almost double the forecast rate.
Both Borrowers and Lenders are charged fees by Zopa. Zopa charges the borrower a fixed fee of £100 (Oct 2011) for each loan. 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 of September 2011, Zopa had lent almost £150m.
In August 2011 Zopa joined with Funding Circle and Ratesetter
to launch the Peer 2 Peer Finance Association to act as a trade body for the UK's peer-to-peer financial industry.
s 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.
On July 10, 2009, Zopa was 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.
United Kingdom
The United Kingdom of Great Britain and Northern IrelandIn the United Kingdom and Dependencies, other languages have been officially recognised as legitimate autochthonous languages under the European Charter for Regional or Minority Languages...
-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
Zone of Possible Agreement
The zone of possible agreement , in sales and negotiations, describes the intellectual zone between two parties where an agreement can be met which both parties can agree to. Within this zone, an agreement is possible...
", a negotiating term identifying the bounds within which agreement can be reached between two parties.
Launched in 2005, Zopa was the first peer-to-peer
Peer-to-peer
Peer-to-peer computing or networking is a distributed application architecture that partitions tasks or workloads among peers. Peers are equally privileged, equipotent participants in the application...
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
Egg Banking plc
Egg Banking plc is a British internet bank owned by Citigroup, with headquarters in Derby and London, England. Egg was born out of Prudential's initial banking arm , that had been established in 1996...
in the UK. The company is based in London
London
London is the capital city of :England and the :United Kingdom, the largest metropolitan area in the United Kingdom, and the largest urban zone in the European Union by most measures. Located on the River Thames, London has been a major settlement for two millennia, its history going back to its...
and backed by Benchmark Capital
Benchmark Capital
Benchmark Capital is a venture capital firm responsible for the early stage funding of some very successful startups. In 1997, the firm invested $6.7 million in eBay, which became worth more than $5 billion by the spring of 1999. Other high-profile investments include Ariba, Juniper Networks, Red...
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 entitled "Internet Based Social Lending", 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
EBay
eBay Inc. is an American internet consumer-to-consumer corporation that manages eBay.com, an online auction and shopping website in which people and businesses buy and sell a broad variety of goods and services worldwide...
and Betfair
Betfair
Betfair is the world's largest Internet betting exchange. The company is based in Hammersmith in West London, England. Since Betfair was launched in June 2000 it has become the largest online betting company in the UK and the largest betting exchange in the world. Betfair claim to have over 3...
in the UK press, Zopa is an addition to the emerging group of peer-to-peer services enabled by the internet. Prosper
Prosper (web site)
Prosper Loans Marketplace, Inc. is a San Francisco, California-based company in the emerging peer-to-peer lending industry. The company operates Prosper.com, a website where individuals can buy loans and request to borrow money...
is a similar service based in the US and P2P Financial
P2P Financial
P2P Financial is Canada’s first internet-based business financing company. The company operates P2PFinancial.ca, an online website where businesses can request to get financing from potential investors. P2P Financial was founded in June 2009 by Matthew McGrath, a former vice-president of private...
is a similar service based in Canada.
United Kingdom
Customers can be a "Lender", a "Borrower" or both. Requests to borrow are matched to offers to lend in a number of 'Markets' of which there are currently ten. A separate system, known as 'Listings', was discontinued in July 2011.A potential borrower is graded by risk by the credit reference agency Equifax
Equifax
Equifax Inc. is a consumer credit reporting agency in the United States, considered one of the three largest American credit agencies along with Experian and TransUnion. Founded in 1899, Equifax is the oldest of the three agencies and gathers and maintains information on over 400 million credit...
. The five risk bands are A*, A, B, C, and since late July 2008, Young (specifically for borrowers aged between 20 and 25, who have not yet established a credit history). 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
Zone of Possible Agreement
The zone of possible agreement , in sales and negotiations, describes the intellectual zone between two parties where an agreement can be met which both parties can agree to. Within this zone, an agreement is possible...
. 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.
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, though early exit is possible in certain circumstances using a system known as 'Rapid Return' to transfer loans to other lenders.
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. Zopa publishes bad debt forecasts as well as actual outcomes, which reveal that outcomes are generally better than forecast but loans issued in 2008 (a time of economic crisis) experienced bad debt at almost double the forecast rate.
Both Borrowers and Lenders are charged fees by Zopa. Zopa charges the borrower a fixed fee of £100 (Oct 2011) for each loan. 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
Bank of England
The Bank of England is the central bank of the United Kingdom and the model on which most modern central banks have been based. Established in 1694, it is the second oldest central bank in the world...
base rate - 0.75%, with a floor
Interest rate cap and floor
An interest rate cap is a derivative in which the buyer receives payments at the end of each period in which the interest rate exceeds the agreed strike price...
of zero. The interest is paid monthly.
As of September 2011, Zopa had lent almost £150m.
In August 2011 Zopa joined with Funding Circle and Ratesetter
Ratesetter
RateSetter is a British peer to peer lending company, based in Southwark, London. It is the first company to have introduced the concept of a “Provision Fund” into peer to peer lending. It is a founding member of the P2P Finance Association, the first trade association for the peer to peer finance...
to launch the Peer 2 Peer Finance Association to act as a trade body for the UK's peer-to-peer financial industry.
United States
Zopa launched in the US in partnership with six Credit UnionCredit union
A credit union is a cooperative financial institution that is owned and controlled by its members and operated for the purpose of promoting thrift, providing credit at competitive rates, and providing other financial services to its members...
s 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
Certificate of deposit
A certificate of Deposit is a time deposit, a financial product commonly offered to consumers in the United States by banks, thrift institutions, and credit unions....
. Investors were able to help Borrowers by offering them a slice of the return on their CD
Certificate of deposit
A certificate of Deposit is a time deposit, a financial product commonly offered to consumers in the United States by banks, thrift institutions, and credit unions....
, 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.
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 was 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.
See also
- Funding CircleFunding CircleFunding Circle is an online portal which allows savers to lend money directly to small businesses. The portal is the first site to use the process of peer-to-peer lending for business funding in the UK. As of 10 October 2011, Funding Circle has facilitated £11.7 million in loans to small firms....
-a similar service that allows individuals to lend to small businesses - RatesetterRatesetterRateSetter is a British peer to peer lending company, based in Southwark, London. It is the first company to have introduced the concept of a “Provision Fund” into peer to peer lending. It is a founding member of the P2P Finance Association, the first trade association for the peer to peer finance...
- a similar service - Prosper - a similar service based in the US
- Lending ClubLending ClubLending Club is headquartered in San Francisco, California. Its CEO is Renaud Laplanche. Lending Club was the first peer-to-peer lender to register its offerings as securities with the SEC, completing its SEC registration in October 2008. As of July 18, 2011 Lending Club has originated a total of...
- similar service based in the US - P2P FinancialP2P FinancialP2P Financial is Canada’s first internet-based business financing company. The company operates P2PFinancial.ca, an online website where businesses can request to get financing from potential investors. P2P Financial was founded in June 2009 by Matthew McGrath, a former vice-president of private...
- similar service based in Canada
External links
- Zopa UK
- Zopa US
- Zopa Italy
- Interview with James Alexander, Zopa co-founder, on peer-to-peer lending
- Audio interview with Zopa founders - a podcastPodcastA podcast is a series of digital media files that are released episodically and often downloaded through web syndication...
recorded in April 2005 - Text interview with Zopa founders by IT WeekIT WeekIT Week is a weekly newspaper for the UK computing industry, published by Incisive Media.It was launched on 18 May 1998 and was originally published by the UK subsidiary of American media company Ziff Davis. In late 2000, Ziff Davis sold all its UK print publications, including IT Week, to VNU...
published in June 2006 - Credit Scoring benefits lenders and borrowers by SAS InstituteSAS InstituteSAS Institute Inc. , headquartered in Cary, North Carolina, USA, has been a major producer of software since it was founded in 1976 by Anthony Barr, James Goodnight, John Sall and Jane Helwig...
published on 26 May 2007 - CEO Douglas H. Dolton Interview, Social Networking Watch, July 2008