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Chapter 2 E-commerce fundamentals 97

the online bank for Prudential in 1998. Mr Alexander had Business status
been strategy director at Egg after joining in 2000, and
The Financial Times (2005) reported that Zopa had just
previously had written the business plan for Smile, another
300 members at launch, but within 4 months it had
online bank owned by the Co-operative Bank. The
founders were also joined by Sarah Matthews from Egg 26,000 members. According to James Alexander, around
who was Egg’s brand development director. 35 per cent are lenders, who between them have £3m of
capital waiting to be distributed. The company has not,
Target market to date, revealed how much has been lent, but average
loans have been between £2,000 and £5,000.
The idea for the business was developed from market Moneyfacts.co.uk isn’t showing any current accounts
research that showed there was a potential market of with more than 5 per cent interest, but Zopa is a riskier
‘freeformers’ to be tapped. product, so you’d expect better rates. Unlike a deposit
Freeformers are typically not in standard employ- account, it’s not covered by any compensation schemes.
ment, rather they are self-employed or complete work
that is project-based or freelance. Examples include Marketing communications
consultants and entrepreneurs. Consequently, their
incomes and lifestyles may be irregular, although they The launch of Zopa has been quite different from Egg
may still be assessed as creditworthy. According to and other dot-coms at the turn of the millennium. Many
James Alexander, ‘they’re people who are not under- companies at that time invested large amounts in offline
stood by banks, which value stability in people’s lives media such as TV and print to rapidly grow awareness
and income over everything else’. Institute of Directors and to explain their proposition to customers.
(IOD) (2005) reported that the research showed that Instead, Zopa has followed a different communi-
freeformers had ‘much less of a spending model of cations strategy, which has relied on word of mouth and
money and much more of an asset model’. PR with some online marketing activities where the cost
Surprisingly, the research indicated a large number of of customer acquisition can be controlled. The launch of
freeformers. New Media Age reported Duvall as esti- such a model and the history of its founders makes it
mating that in the UK there may be around 6 million relatively easy to have major pieces about the item in
freeformers (of a population of around 60 million). Duvall relevant newspapers and magazines such as The
is quoted as saying: ‘it’s a group that’s growing really Guardian, The Financial Times, The Economist and the
quickly. I think in 10 or 15 years time most people will Institute of Directors house magazine, which its target
work this way. It’s happening right across the developed audience may read. Around launch, IOD (2005) reports
world. We’ve been doing some research in the US and that Duvall’s PR agency, Sputnik, achieved 200 million
we think there are some 30 or 40 million people there opportunities for the new company to be read about. Of
with these attitudes and behaviours.’ course, not all coverage is favourable: many of the
Some of the directors see themselves as freeformers: articles explored the risk of lending and the viability of
they have multiple interests and do not only work for the start-up. However, others have pointed out that the

Zopa; James Alexander works for one day a week in a rates for the best-rated ‘A category’ borrowers are
charity and Sarah Matthews works just 3 days a week for better than any commercial loan offered by a bank and
Zopa. You can see example personas of typical for lenders, rates are better than any savings account.
borrowers and lenders on the web site: www.zopa.com/ The main online marketing activities that Zopa uses are
ZopaWeb/public/how/zopamembers.shtml. search engine marketing and affiliate marketing. In 2007
From reviewing the customer base, lenders and Zopa created its own Facebook application ‘People Like
borrowers are often united by a desire to distance them- You’, which lets Facebookers compare their personality
selves from conventional institutions. James Alexander with other people’s. Zopa communicates with its audi-
says: ‘I spend a lot of time talking to members and have ence in an informal way through its blogs
found enormous goodwill towards the idea, which is (http://blog.zopa.com).
really like lending to family members or within a com-
munity.’ But he also says that some of the lenders are Funding
simply entrepreneurs who have the funds, understand Zopa initially received funding from two private equity
portfolio diversification and risk and are lending on Zopa groups, Munich-based Wellington Partners and
alongside other investments. Benchmark Capital of the US. Although the model was