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The online site, which matches lenders and borrowers, is piling on new members as tight credit from conventional sources makes its services more attractive
Zopa, the social lending website that cuts out banks, lent a record £2.5m in February and is piling on new members as the credit drought makes its service more attractive. The company, which brings lenders and borrowers together via the internet, said its business grew rapidly in the second half of last year as bank lending prices rocketed while savings returns tumbled.
Giles Andrews, Zopa's chief executive, said that in the second half new members "with an appetite to lend" rose 81 per cent from a year earlier and loans paid out increased by 78 per cent. In January 2009, new lenders were up by more than 700 per cent and the amount of money lent rose 109 per cent. Each month since July has seen about double the lending of a year ago.
Bad debts are running at about 0.3 per cent of total lendings. Zopa is advising current lenders that bad debts will be higher than that but they should still make at least 7 per cent return, Mr Andrews said.
Zopa stands for "zone of possible agreement"—the point where two people's appetite to do a deal overlaps. Through its website, lenders declare how much they want to lend, at what rate, to which kind of customer, and borrowers bid for the money.
The shortage and increased cost of credit has been a key benefit to Zopa, Mr Andrews said. Where a creditworthy borrower could get credit at 6 or 7 per cent from a bank, now they pay 11 or 12 per cent – if they can get a loan at all. Lenders used to get a percentage point or so extra for taking on risk through Zopa but can now get 9 per cent with Zopa compared with 1 per cent in a savings account.
"People didn't necessarily like their banks or believe them to have their best interests at heart but they did trust them to be around. We had to try to compete against that very solid, substantial trust," Mr Andrews said. "From September 2007, when queues started building outside Northern Rock branches, that positive view of banks started to erode. Their trust advantage has gone."
Zopa makes its money by charging lenders 1 per cent of the value of their loan and taking a flat £118.50 fee from each borrower. Lenders spread their risk by lending in chunks of no more than £10 to individual borrowers checked by Zopa to ensure they are low-risk.
The company, which celebrated four years of trading this month, was started by three of the founders of Egg and is backed by venture capitalists including the US firms Bessemer Venture Partners and Balderton Capital. The former Egg men have now handed over the running of the company to Mr Andrews but are still shareholders.
Zopa has international ambitions. An exploratory attempt to launch in the US fell foul of the regulatory system and the cost involved. But Mr Andrews said Zopa was looking at launching in Japan.