Zopa Review: Operator Health
With the main voices of the peer-to-peer lending (P2P) industry being the P2P platforms themselves, there is a distinct risk which is often not clearly articulated: ‘Platform Risk’. We define Platform Risk as operational instability at a P2P platform which may affect investors’ capital. For example, if there was fraud at a platform or if a platform became insolvent the outcome would pose a risk to investors’ capital.
Gaining an in-depth understanding of a P2P platform as well as the loans it originates is important when making any lending decision. Furthermore, we advocate diversifying across a number of P2P platforms, as well as a number of borrower types, and, of course borrowers. Diversification is a principal of investing which is just as important when investing in P2P as other asset classes.
Similar to the reviews of RateSetter and Funding Circle earlier this year we’ve conducted a further review of Zopa as a business. For a review of Zopa’s loan performance it’s worth checking out our analysis of the Zopa loan book. For more information on Zopa’s loan book, check out Orca’s Zopa analytics.
Who is Zopa?
|Company Name||ZOPA Limited|
|Incorporated||Aug 2004 (first loan 2005)|
|FCA Permission||FCA – Fully Authorised|
|Telephone||+4420 7291 8331|
|Address||1st Floor Cottons Centre, Tooley Street, London, SE1 2QG|
Zopa UK Financial Health
Zopa is in a period of growth and expansion. The platform has significantly grown its revenue from £20.6 million in 2015 to £33.2 million in 2016. Operating at a loss of -£8.8 million in 2016, the company is still supported by external investors. In June 2017, Zopa raised £32 million from Northzone with the funds likely to support Zopa’s bank launch plans (see below).
|End of Year||Revenue||Loss/Profit||Net Assets|
Zopa UK Fees
Zopa fees are the spread between the borrower rate and the lender rate, similar to other P2P platforms. It is estimated that the spread is between 3-4%. Investors are charged a 1% withdrawal fee when withdrawing early from the Zopa Core and Plus products.
Zopa UK Failure Plan
If Zopa was to go out of business, it 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 became insolvent, these would still exist.
Zopa UK Structure
Zopa UK Management Team
Zopa was founded in 2004/2005 by a team who also launched the UK’s first internet bank ‘Egg Banking’. Giles Andrews, who co-founded Zopa, is now the Chairman of the company and is often regarded as a figurehead of the P2P industry.
|Giles Andrews||Chairman||Giles is the Executive Chairman of Zopa and one of the company's founders. He is highly regarded within the industry as a peer-to-peer lending pioneer.|
|Jaidev Janardana||CEO||Jaidev is the CEO of Zopa. Prior to joining Zopa in 2014 as the COO, Jaidev spent 12 years at Capital One, holding multiple roles from risk to marketing. He was promoted to CEO of Zopa in 2015.|
|Phillip J. Riese Greg Jackson Charles Birnbaum Tim Levene||Non-Executive Directors||The Zopa non-executive board comprises of high profile entrepreneurs, ex-bankers and venture capitalists.|
A prudent, sensible approach
The consumer credit market is facing challenging conditions, and Zopa has taken steps to reduce exposure to higher risk borrowers. We believe this is a sensible and prudent approach. Within the latest annual report, published in August 2017, Zopa highlighted concerns about the rise in overall consumer credit, particularly in light of rising inflation. In a statement issued by Andrew Lawson, Zopa’s Chief Product Officer, the company stated that it would reduce the proportion of higher risk D-E loans in the Zopa Plus product from 30% to 10-15%.
With challenging borrower conditions, Zopa has been sensible to constrain its lending criteria. This would not have been an easy decision while the platform is still overloaded with investor capital.
Zopa UK Bank
In November 2016, Zopa announced its intention to launch a bank. This came as a surprise and people questioned, why?
Jaidev Janaradana discussed the reasoning behind this strategy at the AltFi conference last March. Incidentally, Samir Desai, Funding Circle CEO, gave an equivalent presentation on why they would never become a bank.
Jaidev argued that Zopa was uniquely placed to become a bank, having built a user centric technology platform similar to current challenger banks and a strong track record of lending similar to traditional banks. However, just because they can, doesn’t mean they should; Jaidev commented that an increase in products would better serve their customers.
It’s clear that Zopa has visions of being bigger than a strictly consumer-focused P2P lending platform. The new banking products will include a savings account (FSCS coverage) and credit cards in addition to their P2P services, but no current accounts.
Zopa UK Review Conclusion
Zopa is a well-funded business that is growing rapidly with a sensible and prudent approach. Continued growth in new lending has allowed the company to build a greater number of loans under management which in turn has increased revenue.
Launching a bank will be costly which could cause a distraction from the peer-to-peer lending arm of the business. Zopa has, however, proved to be a responsible lender which communicates well with its investors. Our opinion is that they will continue to focus on protecting their P2P business and investors.