Zopa. A UK p2p lender.

Zopa is one of the first and biggest p2p lenders in the UK. It has more than 300,000 customers and it plans to acquire more. It has recently applied for a banking license, in order to capitalise on its brand. Zopa’s focus has always been customer centric, becoming a bank is a natural evolution. The growth of ZOPA’s customer base has been bigger than its availability of loans, because of this ZOPA has currently suspended incoming money from its customers. (This is not the case for withdrawals). Existing customers can still reinvest all interest earned. This move is a testament to their customer-centric focus, they prefer to turn away new customers rather than have the customers money on deposit “doing nothing”.

Strengths and Opportunities for Zopa

  • The minimum lending on Zopa starts at £10, this offer investors an easy way to learn about the platform and p2p lending in general. Such a small some amount reduces the psychological barrier to invest in something which is new to most investors.
  • Zopa is FCA regulated.
  • Zopa has applied for an IF-ISA.
  • The platform is very easy to use and investors can adopt a hands-off approach.
  • Investors exit their investments early, a 1% fee is retained in case of withdrawals for Zopa Access and Zopa Classic.
  • Zopa has a thorough vetting process of the borrowers.
  • Borrowers have no penalties for paying loans early, this attracts more borrowers to Zopa which gives investors more opportunities to invest.
  • Zopa’s loan book is available, offering a level of transparency not available in other platforms. This shows a certain level of confidence by Zopa in their loan book and the strategic decisions by which it is driven.
  • Zopa has a provision fund on the Zopa Access and Zopa Classic products.
  • ZOPA has three main products:
    • Product Name: Access
      ROI: 2-4%
      Loan term: 1 year
      Minimum: £10
      Early Access Fee: £0
      Loan Type: A-C
      Covered: by a safeguard fund
    • Product Name: Classic
      ROI: 4-5%
      Access at anytime
      Loan term: 1 – 5 year
      Early Access Fee: 1%
      Loan Type: A-C
      Covered: by a safeguard fund
    • Product Name: Plus
      ROI: 6-7%
      Loan term: ??
      Early Access Fee: 1%
      Loan Type: A-E
      Minimum Investment: £1000

Weakness and Threats for Zopa

  • Zopa Access and Zopa Classic products require the investor to pay a 1% fee for early access of the capital invested. This penalty can be avoided if the capital is not moved before the end of the loan.
  • The provision fund/safeguard fund cannot cover all the outstanding loans, it is only intended for isolated defaults. In the case of systemic credit shocks, which would affect all borrowers the provision fund would probably not be able to cover mass defaults.
  • Zopa has suspended deposits (not withdrawals), because of an oversupply of capital.
  • There is an automatic secondary market, but loans may not be sold in case of pending repayments by the borrower.
  • The loans on Zopa are not asset-backed, which increases the default risk to investors.
  • Low Returns compared to other p2p platforms [LINK]
  • This investment is denominated in Sterling. As of May 2017, there are many unclear issues surrounding the United Kingdom in terms of Brexit and Scottish Referendum. Fintech businesses have been relocating to mainland Europe because they need to maintain access to both the European single market and European talent. Potentially, these issues will have an impact on the value of Sterling compared to the Euro and USD.

Conclusion

Zopa is an excellent entry point into the peer to peer lending market for investors. The fact that the returns are lower compared to other platforms needs to be weighed against the healthy amount of goodwill Zopa has generated over the years by constantly delivering what was promised.

For more information please visit: https://www.zopa.com/