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While the banks get involved in everything from mortgages to betting on the price of aluminium, Zopa’s business model is focused on unadulterated lending. Andrews says both parties on either side of the deal like the simplicity of it all. Alongside the knowledge that their money is helping real people, lenders particularly appreciate the returns available from Zopa, far outstripping current savings rates. UK savers have had a bum deal since rates were slashed by the Bank of England from five percent to a pitiful 0.5 percent in order to kick-start the fragile economy. Zopa’s eye-catching returns have tempted plenty out-ofpocket savers to become anonymous lenders through Zopa. “Savers in the UK are being hit where it hurts very hard,” says Andrews. “People who depend on savings for an income, like retirees, are in real trouble and desperately looking for alternatives to get a better return.” Likewise, the banks have been reluctant to lend to customers, so have hiked up their interest rates. It’s been a win-win situation for Zopa. Back in 2005, Zopa’s founders made a conscious decision not to throw money at aggressive marketing campaigns, choosing instead to let the company grow through word of mouth, and its uniqueness generate its own publicity. The day of Zopa’s launch saw the site reported in London’s respected Financlal Times newspaper and The Economist as well as a clutch of other print and web publications. The media’s inquisitiveness about the business still exists today, which is reflected by a media section on the Zopa website stuffed with press cuttings and TV and radio clips. As of August of this year alone, Zopa has been covered by 45 media outlets. “We’re terribly lucky that the story remains interesting,“ the boss notes. After the launch, Zopa created a stir, particularly among techies and IT professionals who were au fait with groundbreaking internet start-ups. “Our early adopters were heavily dominated by IT professionals and a few people who worked in the City. With any new products like this, the IT boys like to have a look around and talk to each other, because they are interested in technology.” Nowadays, Zopa’s customers come from all walks of life, although the majority tend to be men, especially the lenders, who are often middle-aged or retired men with disposable incomes. “It’s probably fair to say that our very big lenders are typically older and either in or approaching retirement,” Andrews reveals. “However, we’ve also got lots of young people lending very small amounts of money, presumably because they think it’s interesting.” Zopa also strives to generate an online community so that users get to interact with one another and discuss the business of lending and borrowing. Its online forum, for instance, is especially handy for those getting to grips with the ins and outs of the site. “We’re very lucky that we’ve got a group of users who are prepared to give up their time and knowledge to help educate new
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people.” There is also a healthy following on the company’s blog, Facebook and Twitter – the latter being a convenient platform to answering users’ queries. “We find that if customers tweet us with a question it tends to get answered very quickly indeed compared to email. So it’s just a very efficient way of dealing with people. The customers like it and the people here like it.”
Market forces Zopa’s success in the UK led to Andrews and his team eyeing up the almost endless opportunities that lay overseas. However, it wasn’t as simple as just setting up shop in a foreign country and then counting the cash as the punters came flooding to the site. Markets like the US offer “huge potential” according to Andrews, but regulations vary greatly across the world and ultimately proved to be a thorn in the company’s side. “The regulatory challenges are enormous in every country – it’s not like eBay, which is easy to roll out from one country to another.” Zopa launched in the US in 2008 but regulatory pressures meant the business was different to its UK counterpart. “We ended up launching a business in conjunction with credit unions, which are a rather bigger group in the United States than they are here. It wasn’t as strong a peerto-peer business model as it is here, and we also launched in 2008 right in the face of global Armageddon.” After a year, the decision was taken to withdraw from the US. Efforts to break into Japan ran into difficulties and in Italy Zopa was forced to operate through a franchise. “It’s absolutely not trivial to launch in different countries and indeed in some countries it’s not even possible.” Andrews describes the company’s retreat from the US, the biggest market in the world, as “painful” but is focused on the UK for the time being. “We’ll confine our ambitions to the UK for a year or two and see how we get on, because the UK is a big enough place for us to build a substantial and exciting business and then maybe think again internationally.” With Zopa garnering increasing attention and other peer-to-peer lenders such as YES-secure in the UK, Smarva in Germany and Boober in Holland, does Andrews believe traditional bricks-and-mortar banks and other financial institutions should be quaking in their suits? “I think we definitely represent an enormous threat to them in this segment of the business because we do it more efficiently,” he states confidently. “So yes, they should definitely be worried, but if we and other person-to-person lenders were to take half of the banks’ personal loan business away from them in the next five years, then that represents an enormous opportunity for us but it’s not a terrifying loss for the banks because they do so much else. So we could take a very a profitable niche away from them, and it might impact share price a bit but it’s not going to kill them.”
“The riskier groups pay higher interest rates to the lenders but the default rate will be higher”
23/09/2010 13:52