Zopa: they get it, but the old high street banks don’t

By in banking, cloud, products, strategy on 1 October 2010

Here’s an interesting news item for you. Zopa has just grabbed 1% of the UK loans market. Now if you’re still brushing off the dust from the banking collapse and looking around you, you’ll be seeing a very different landscape.

The old banks are still shell-shocked and fumbling. But the new guys, leaner, more agile and more innovative are pulling the financial carpet out from under their shaky feet.

I’d just finished writing about Metro Bank and saw the Tweet about Zopa’s market share. And that news got my interest.

Zopa is a loans provider. But instead of just reselling finance at a stupid rate from some finance house, Zopa connects people with money to lend to customers who want to borrow. That’s called Peer to Peer lending, or P2P if you prefer cryptic sound bytes.

It may sound a bit left-field, not something that many would bother with. But consider this. Zopa has now arranged £100 Million of P2P loans for their customers.

Now that’s serious money. Maybe Zopa’s worth a closer look…

Zopa – not just a start-up venture

With a 1% market share and £100 million already transacted, Zopa has to be seen as a serious player in a significant new market.

What makes Zopa special is their history. They haven’t just risen out of the ashes of the crash, they started up in 2005, when the high street banks were doing very nicely thank you, out of you and me.

Peer to Peer lending isn’t new. But with the banks stranglehold around the global economy, it never seemed to be getting off the ground. The credit crash showed that the conventional financial foundations the banks were build on weren’t as solid as we believed.

The crash made us re-think our finances, to take a fresh look at who deals with our money. Not just in terms of what we borrow, but also what we invest in.

A better return and a more worthwhile one

Where once no-one thought twice about putting money into a bank investment account, that old bank doesn’t look as secure now and the rate of return not half as attractive either. With banks now not viable for many, P2P becomes a real, viable alternative.

Your money – working for you

Zopa’s idea is easy, you have money to lend, you simply offer it and you set your own rate. Its driven by the market. On average, after bad debt, investors see a return of around 8%. That’s significantly better than any other form of investment offered on the High Street.

Lending to strangers – how safe is that?

Funnily enough, Zopa say investment is actually safer than dealing with a high street bank. All the same credit checks are in place, your loan is spread across several borrowers and unused assets segregated from Zopa’s balance sheet in a ring-fenced bank account.

I’m just a commentator, of course, so I don’t give any financial advice nor am I qualified to. But anyone looking to invest their money or wanting to borrow should take a look at Zopa. And maybe you’ll get it too.