Zopa, founded in 2005, was the first peer to peer lending platform not just in the UK, but globally. The platform connects investors with consumers seeking personal loans to purchase cars, consolidate debt or to fund home renovations. Zopa has facilitated more personal loans than any other UK P2P provider.
Risk and Security
The principal risk is a large number of borrowers default on their loans. This may be a result of stressed economic conditions or Zopa’s credit sanctioning. Zopa protects investors through its credit checking processes and diversification. For investors pre-autumn 2017, Zopa maintained a provision fund, known as ‘Safeguard’, to cover losses. However, this has been stopped for new investments. Zopa splits investors’ capital into a minimum of £10 chucks and spreads funds across a large number of borrowers. Zopa limits exposure to each borrower to 1%. Despite not in operation for new investors, Zopa still monitors the coverage of their Safeguard fund to track its ability to pay out when a loan defaults. The Safeguard is not a guarantee.
If a payment fails, a Zopa representative will call the borrower and usually clear the arrears within a few days of the missed payment. If a borrower fails to pay after 30 days, Zopa may involve a debt collection agency. After 45 days, the loan is considered to be in default and P2PS Ltd, a subsidiary of Zopa who manages the Safeguard fund, takes ownership of the loan. In some instances, legal action may be taken.
Investors can access their funds early by selling active loans to other investors on the secondary market. As there is often a high demand for borrowers on the Zopa platform, investors can often receive their funds back quickly. Investors will incur a 1% fee for selling loan commitments.
If Zopa was to go out of business, the platform intends on using loan servicing fees to cover the ongoing costs of managing the loan book. Loan contracts between investors and borrowers are direct, so if Zopa was to become insolvent, these contracts would still exist.