Celebrating the tenth anniversary in finance, Zopa, world’s first peer to peer lender has made significant achievements since its founding “in a barn in Buckinghamshire.” Zopa, led by CEO and Co-Founder Giles Andrews, launched a disruptive financial industry that enables consumers and businesses to bypass banks.
Since 2005, Zopa has lent over £750 million and predicts it will top £1 billion within the next couple of months. In 2014 alone, Zopa facilitated over around £266 million indicating strong platform growth. Zopa has paid over £46 million in interest to investors in their loans while providing credit to more than 58,000 individuals across the United Kingdom. With its high profile investor base including Bessemer Venture Partners, Augmentum Capital, part of RIT Capital Partners (Jacob Rothschild’s Investment Trust) and Arrowgrass Capital Partners, Zopa has set itself up for continued future success.
I recently caught up with INSEAD and Oxford alum Andrews via email wherein he discussed poignant topics including P2P’s dramatic growth, Zopa’s future, P2PFA and FCA regulations and alternative finance. Below follows our interview:
Erin: Peer to peer lending is quickly establishing itself as the alternative to bank financing. Programs such as the Funding for Lending Scheme have failed to garner market traction, meanwhile, P2P lending is experiencing dramatic growth. How do you see P2P lending evolving over the next five years?
Giles: The industry will continue to grow with consumer and business lending being the two dominant areas. We will see more banks refer business customers to some platforms and we expect that consumer P2P lending platforms will increase their share of the personal loans market as traditional lenders will lose ground. We are seeing a shift in lending as some platforms now do a mix of different lending types, making transparency of platforms even more important. I also expect to see some consolidation in the sector over the next five years.
Giles: I think we have a positive regulatory environment in the UK for peer-to-peer lending. As an industry we have secured regulation for P2P lending and so far it has helped provide a stamp of approval and has aided growth in the sector. The P2PFA has worked hard to ensure that there is not over regulation of the sector in order to avoid regulation stifling of growth. I hope that platforms in the industry continue to grow in a sustainable way and ensure that standards are maintained, to continue to build trust with consumers and businesses.
Giles: I think that as platforms we must ensure that we are fair, clear and not misleading in our positioning of the sector. At Zopa we have worked very hard over the past decade to build trust and ensure that customers are fully aware about the risks and who they are lending to and for what purpose. Regulation is designed to help prevent any rogue platforms operating and any platforms that do promote their service in a less than fair or clear way should be called out and fined appropriately by the FCA, as we only need one bad platform to ruin the reputation of the rest of the industry.
Erin: You are a founding member of the P2PFA. How has this industry group helped engender industry growth? Best practices?
Giles: The P2PFA has been instrumental in speaking to the regulator and government. No one company should get special treatment, so this is why I decided to approach other well established platforms to form the P2PFA. Since its creation we have gone from three members to nine, secured regulation for the industry with existing best practice and standards and we welcome other platforms to work with the P2PFA to help create a strong and responsible industry. As a trade body we meet regularly to discuss best practice and how we can work together to promote the P2P lending industry.
Erin: Where do you see the most growth for Zopa? Will you expand your platform into other European markets? The US?
Giles: Zopa is very much focused on the UK personal loans market, as it is worth over £25bn a year in new loans and we currently have under 2% market share. We are aiming to have 20-30% over the next 5-10 years and expect P2P to take up to 50% of the market if not more. We have no plans to expand into Europe or the US as it very much depends on the regulatory environment as each country and even state in the US have different legal frameworks.
Giles: Institutional funds will become a useful liquidity resource to help platforms grow. Institutions do a lot of due diligence on platforms which can take months, so I would expect only the most responsible and mature platforms to lend large amounts of institutional funds. We want to ensure that there is a balance and ensure that consumer platforms like Zopa remain retail focused as P2P was designed to provide value to consumers rather than institutions.
Erin: Recently Zopa stopped an attempt to generate a fraudulent loan. How frequently does this occur? How big of an issue is fraud within the P2P industry?
Giles: Our fraud prevention technology and processes are industry leading. We have a low number of fraudulent attempts each year but as the industry grows we can expect this to increase. That said we are very good at prevention and stopping applications before they progress into approvals.
Erin: Are banks doomed? Will they eventually wither at the hands of regulation and innovative competition?
Giles: Banks will not vanish overnight and are important for things like current accounts and day-to-day accounts but there are many areas of banking that are being disrupted and ripe for further innovation and change. It is very hard for banks to compete at an operating level with P2P lenders as well as pricing for loans and even more so on return rates. We expect banks to lose ground in the personal loans market as well as the SME lending market to P2P platforms. Banks are regulated heavily for good reason but recent history and ongoing scandals suggest that banks have not learned from their mistakes and have only created a wider gap of distrust between them and their customers, something that benefits our industry. I expect that in the next two decades many traditional products and services like loans or even mortgages will be dominated by more efficient P2P providers that can connect people directly through the internet.