This post is aimed at those lenders who are interested in the technical details behind matching borrowers with lenders. The change to the matching mechanism discussed here is a subtle point and only makes a marginal difference to how fast a lender’s money is lent out but, for the team at Zopa these details are important so I’ve written this post to share our thinking.
The Zopa marketplace matches lender offers with borrower loan requests by putting lender offers into a queue; there is a different queue for each market. When a borrower requests a personalised quote for a loan the system takes offers off the queue until it the requested loan amount is met. The borrower’s quoted APR is an average of the rates offered by lenders participating in the loan.
The lending offer queue is ordered by:
- Interest rate (cheapest to most expensive) and then by
- The time the interest rate was last set in that market
The second criterion is changing to use a round robin queue order. This means that as soon as a lending offer in a market is matched with a borrower’s loan request the offer goes to the back of the queue. Because there are more personalised quotes than actual loan applications the queue position changes very frequently and all lenders have an equal chance of participating in loans.
This change makes a difference only at the margins but is a step toward ensuring an equitable distribution of loans across all lenders which should make the market that little bit more efficient – prices should be driven by consideration of risk and reward and by the forces of supply and demand; not by the micro-structure of our market place. The only difference you will see on the lending offer page is the Minimum Loan Size column will disappear (this currently appears when you click on more info button). This figure made sense when your queue position was fixed but not when it is constantly changing. Also, the MLS was an important figure in calculation of the ZOPA but it plays no role in the new method described in part 2 of this blog series.