Zopa

Launched in early 2005, Zopa is a peer-to-peer online brokerage that couples British residents who want to lend with those who want to borrow. The company represents a new business model in the retail financial services industry, and since Zopa is not technically a bank and does not lend money itself, the capital requirements to run the business are relatively small. Compared to a traditional full service bank Zopa concentrates on only a few steps of the value chain.

Zopa stands for ‘Zone of possible agreement” which is a term in business theory. This refers to overlap between one person’s bottom line and other person’s top line. This approach typically suggests that the agreements through this scheme are negotiation oriented for majority types of products and services unlike traditional banking.

Target Segment

A market research was conducted a year ago before launching Zopa by firm’s foundation team that showed there was a potential market for “freeformers” to be tapped in retail financial services. “Freeformers are basically freelancers, self-employed, project-based employees who were not in standard full-time employment. Their lifestyle, income could be irregular, although they may still have been assessed as credit worthy. These individuals are identified as being either underserved by or non-consumers of traditional banking services. Freeformers can be consultants or entrepreneurs too.

Web for financial services

In recent years it has been observed that there has been growing confidence and trust in using the web for financial services rather than sticking to traditional banking models. The firm’s vision of creating a innovative web based business model by creating a finance option for freeformers beyond traditional banks, and to provide a virtual community that was more alignment with the independent culture and lifestyle of this growing social group.

\Operating model

Compared to a traditional full service bank Zopa concentrates on only a few steps of the value chain. Zopa broadly consisted of two types of customers i.e. lenders and borrowers unlike traditional banks. The money lending happens based on credit worthiness of group of members who would be assessed by Equifax-based credit ratings. Also Individuals would be awarded ratings by firm’s own underwriters.

The Social aspect

Unlike traditional banks Zopa has seen only 0.05% of firm’s loans turned into uncollectible debts. The firm’s management credited this success to injection of social aspect into lending. The lenders were able to see username and other personal details that include name, age, sex, address and purpose of loan. Lenders could also track the payments. Borrowers would be able to communicate with lenders for conveying their purpose for loan or thanking them.

Benefits

The main benefits for borrowers was that they could borrow relatively cheaply over shorter periods for small amounts which is other way around for traditional banks where lending typically becomes cheaper for larger amounts over longer periods. Interest rates would be as low as 7% which is cheaper than credit card and loan rates offered by most banks. Also lenders would earn revenue up to 20-30% higher than putting money in a bank term deposit account.