Back to Zopa Blog

The Power of the Crowd, and the Death of the Middleman


As you’re already on the Zopa website, I’m guessing you already know how Zopa works. And there’s a good chance you think Zopa offers a great service.

I certainly think it does. In fact, I think Zopa is a truly fantastic company. It has cut out the middleman and offers great deals for both borrowers and lenders.

But beyond those great deals, I think there’s another reason to be really positive about Zopa. You see, Zopa was a true ‘crowd finance’ pioneer, and it’s led the way for lots of other sites to follow on behind.

Some of these sites offer a very similar service to Zopa. But others have gone in different directions, developing the idea that ordinary people are best-placed to manage their own money. The truth is, we have far less need for financial middlemen these days.

So let’s look at some of these other innovative ways that you can use the power of the crowd to get a great return.

Lending to business

On Zopa, you’ll mainly be lending money to other individuals but some of your loans will also go to help small business owners and sole traders. Some other websites allow you to lend only to businesses these include Zopa’s P2PFA industry colleague at Funding Circle, and Market Invoice also provide finance to the sector by financing companies’ invoices.

Help the environment

Many of us are worried about the environment these days, and you can now use the power of the crowd to make a difference to the environment. The way to do this is via a site called Abundance which was founded by an ex-Zopa co-founder Bruce Davis. You can invest as little as £5 in a UK solar power project and you’ll then get an internal rate of return somewhere in the region of 7% to 9% for 20 years. And you’ll get your money back too. You can also invest in wind energy projects.

Investing via Abundance is definitely higher risk than Zopa, but it’s not as high risk as you might think. That’s because you’re not buying shares in the renewable energy projects, you’re just lending money to them via a debenture (similar to a bond).

Higher risk

Maybe you’re the kind of person who wants to generate a really big return from your savings. If that’s the case, you could consider something called ‘equity crowdfunding.’

This is where you invest in small, young companies and get shares in return. Often you’re investing in start-ups.

Now I should stress here that the level of risk here is high. If you’re investing in young companies, there’s a high chance that the company could go bust – in fact, that chance of failure is probably more than 50%. And even if the company does survive, it may never make much money for shareholders.

But if you invested in a portfolio of, say, eight start-up companies, there’s a decent chance that one of them will do well, and you may end up making a decent profit overall in the end.

So if you’re tempted to try out equity crowdfunding, the leading sites are Crowdcube and Seedrs. You’ll see a range of companies where you could potentially invest your money.

I should add that the FCA rightly thinks that equity crowdfunding isn’t for everyone. It’s issued advice on the issue of who it’s appropriate for and recently introduced new regulation for the sector.

And if you want to find out more about the whole ‘crowd finance’ space, take a look at this ‘crowdpower’ report from MoneyWeek magazine.

What’s best for you?

You’re probably wondering where is the best home for your money.

Sadly, I can’t give you advice that is tailored to you. I don’t know your circumstances and I don’t know your attitude to risk. But hopefully I can give you information that will help you make your decision.

The first thing I’d say is that pretty much everyone should have some ‘low risk’ money. Even if you’re someone who is very risk tolerant, you should always have some cash that will still be there if the global economy is hit by another crisis.

For me, Zopa is an obvious home for at least some of that money. The risk here is minimized because Zopa carefully scrutinises potential borrowers to make sure they should be able to pay their loan back. What’s more, Zopa has taken additional steps with its Safeguard fund should a borrower fail to pay their loan back and defaults. (That said, if we saw an especially high level of defaults, there might not be enough money in the Safeguard fund to fully compensate all the lenders.)

Then if you’re prepared to take more risk , you could take a look at some of the riskier options such as Abundance and Seedrs.

And whatever road you follow, I think we should all be very grateful to Zopa pioneering this hugely exciting ‘crowd finance’ space.

MoneyWeek magazine are also running a competition to win a 3D printer worth £1,000, all you need to do is enter your email address.