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96 Part 1 Introduction

Figure 2.18 Zopa (www.zopa.com)

In 2007, listings were launched (http://uk.zopa.com/ The Financial Times reported that banks don’t
ZopaWeb/Listings/) where loans can be requested by currently see Zopa as a threat to their high-street busi-
individuals in a similar way to eBay listings. ness. One financial analyst said Zopa was ‘one of these
The main benefit for borrowers is that they can borrow things that could catch on but probably won’t’.
relatively cheaply over shorter periods for small amounts. Zopa does not have a contact centre. According to
This is the reverse of banks, where if you borrow more its web site, enquiries to Zopa are restricted to e-mail in
and for longer it gets cheaper. The service will also appeal order to keep its costs down. However, there is a service
to borrowers who have difficulty gaining credit ratings promise of answering e-mails within 3 hours during
from traditional financial services providers. working hours.
For lenders, higher returns are possible than through Although the service was launched initially in the UK
traditional savings accounts if there are no bad debts. in 2005, Financial Times (2005) reported that Zopa has
These are in the range of 20 to 30% higher than putting 20 countries where people want to set up franchises.
money in a deposit account, but of course, there is the Other countries include China, New Zealand, India and
risk of bad debt. Lenders choose the minimum interest some South American countries.
rate that they are prepared to accept after bad debt has The peer-to-peer lending marketplace now has
several providers. For example, the social lending site
been taken into account for different markets within
Kiva allows lenders to give to a specific entrepreneur in
Zopa. Borrowers are placed in different risk categories
a poor or developing world country. In the US, Prosper
with different interest rates according to their credit
(www.prosper.com) has over 600,000 members and uses
histories (using the same Equifax-based credit ratings
a loan listing model.
as used by the banks) and lenders can decide which
balance of risk against return they require.
About the founders
Borrowers who fail to pay are pursued through the
same mechanism as banks use and also get a black The three founders of Zopa are chief executive Richard
mark against their credit histories. But, for the lender, Duvall, chief financial officer James Alexander and David
their investment is not protected by any compensation Nicholson, inventor of the concept and business architect.
scheme, unless they have been defrauded. All were involved with Egg, with Richard Duvall creating