On Friday, online lending platform Zopa announced the latest update of its credit risk model. This news comes just a few weeks after the lender announced updated on improving loan sale time progress, rebate period, and ISA transfer-in. Chief Product Officer at Zopa, Andrew Lawson, revealed he and his team are continuing to monitor leading macroeconomic indicators carefully alongside how Zopa’s loans are performing compared to expectation:
“The trends in the wider UK market we mentioned last month, like levels of defaults and personal insolvencies, remain evident. Within Zopa, our outlook for loans remains the same as our last update, meaning our expectations have not changed since August.”
Lawson went on to note since their last update, his team has launched a new credit risk scorecard, which is a model that they use to assess the credit risk of borrowers that are applying for loans:
“Our new model mixes proven traditional techniques with more cutting edge data science approaches that new technologies have unlocked, and replaces our previous model that we launched in April 2015. The new model not only uses more advanced techniques, but is also built on more data, and more recent data – all of which means it improves our ability to assess loans in today’s market.”
Lawson then explained that over the past 12 months, 67% of Zopa’s lending has been non-Safeguarded and as of the end of last month, non-Safeguarded loans accounted for 64% of the whole Zopa loan book. He added:
“Our principles remain the same, regardless of Safeguard. We still believe in prudent risk policies, diversification, and effective collections and recoveries policies. As our expectations of defaults increased, we have increased our prices, so that the returns we target for investors in each risk market remain the same. Given the current climate, we’ve increased the mix of lower risk, lower return A-B loans in our products, which is why our target rates reduced.”
