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Reaction to Zopa launching a bank
P2P money was the first to break the news that Zopa was launching a bank on Wednesday. The reaction from experienced lenders on the P2P Independent Forum has been mixed, with some accusing Zopa of going over to the dark side. The user hendragon wrote:
I understand that things move on and evolve. Zopa began as a market where borrower and lender met in the middle (Zone Of Potential Agreement). Loans were approved by underwriters before they were allowed on the market. Where applications were rejected the potential borrower could appeal directly to lenders via an auction process. This has now evolved to Zopa classic and plus. There is also the fact that Zopa is trying to become a bank and enter the establishment it set out to disrupt.
Latter day Zopa has strayed so far from P2P that it seems to want to become an entity that has left its original purpose behind. There must be severe pressure to start making profits and becoming a bank is one way to do it. As Zopa was the originator of the whole sector I cannot help but feel sadness at this outcome.
The user sl75 wrote:
It was clear that was the direction they were going in when they launched safeguard...
That was the point where it seemed to me that Zopa stopped looking at innovation, and instead sought to imitate the traditional banking system.
The question then is whether acquiring a banking licence will ultimately be used to allow the P2P side to become more innovative (branching out into new and innovative ideas that would scare off the mass-market investors who are more comfortable with something that looks like a bank, and even more comfortable with something that actually is a bank), or if the P2P side of the business will then simply be allowed to wither away and die over the following few years as the remaining P2P loans get paid off.
(compare with how Safeguard was originally introduced as an alternative to what were then "standard" P2P loans, and very quickly become the only available option).
So why would experienced lenders be wary of such a move? Zopa launched in 2005 as a lending exchange - matching borrowers to lenders like a financial dating website - cutting out the middleman. The big idea, taken from Zopa's website in 2006, was all about removing the bank from the process:
Here's the way the world works (and it must be right because it's been like this for hundreds of years...)
People who have spare money give it to a bank. Banks then do whatever they like with it. Some of it they lend to people who need to borrow. Some of it they give to their shareholders. Some of it they gamble on the price of tin, or the dollar going down, or whether there'll be floods in Asia. Banks make lots of money from all this, a fraction of which they give back to their customers.
Zopa though lets people who have spare money to lend it directly to people, like them, who want to borrow it. No bank in the middle, no huge overheads, no unethical investments.
To minimise any risk, the money each lender puts in is spread amongst at least 50 borrowers (and likewise each borrower gets their money from a number of different lenders).
Zopa is, therefore, for people who want to be a part of something new. Who want to join a community of like-minded individuals and lend to them and borrow from them in a trusting but secure way.
Zopa is for people who are looking for a better rate of return. Zopa's interest rates aren't squeezed by middlemen (the banks) because there are no middlemen - that's the Zopa idea.
Zopa is for creditworthy people who earn money in new ways, in ways that banks don't always recognise. People who are self employed, people who have peaks and troughs to their income, people who would be invisible to a bank's credit rating system but are seen and validated by Zopa's.
When Zopa launcged it targeted both lenders and borrowers who were looking for an alternative to banks. Zopa offered great rates to both lenders and borrowers and made finance interesting and personal again. It is perhaps reasonable to assume that these original lenders would look at the idea of Zopa launching a bank as a betrayal of its founding principles.
However there are more rational reasons to support this move. A number of innovative FinTech challenger banks are launching that are closer technologically and ethically to Zopa, than they are to classic banks. It is therefore only reasonable for Zopa to look at this as an opportunity for diversification and growth. Given than peer-to-peer lending is now regulated by the Financial Conduct Authority, the incremental effort to obtain a banking licence will not be as great as it would be for a new challenger bank.
It is likely the new Zopa bank and Zopa P2P platform would be separate companies under the Zopa unbrella. There is also the possibility that other top tier P2P companies such as Funding Circle could go down the same route, but it is unlikely to be a trend for peer-to-peer companies in general at this stage.