It was 10 years ago this week that Zopa was founded, launching the world’s first peer-to-peer lending platform.
The company’s success is evident not just in its longevity but also in the number of firms which have since been set up in the P2P market, and the fact that this form of lending has started to cross over into the mainstream, with official regulation and perhaps soon a dedicated peer-to-peer lending ISA.
But surprisingly it was the credit crunch of 2007 and the financial crisis of the following year that proved to be making of Zopa, according to co-founder and CEO Giles Andrews.
“The financial crisis could have been a threat,” he says. “But our biggest success in the first couple of years we were in business was in building a risk function that dramatically outperformed.”
This meant that the people Zopa customers lent to presented as little risk as possible in terms of potential defaults: these were in effect “super-prime” borrowers.
“Had we not done that – and had we gone into the credit crunch with anything other than brilliant risk management, then I suspect it would have been a disaster for us,” Andrews adds.
What could have been a serious threat turned into a significant opportunity for Zopa. “It meant we could start telling a story about how well we managed risk in the biggest crisis since the 1930s,” Giles adds. “In the period before 2008 we weren’t preparing for the financial crisis, but that was just how we thought we should run a business. At the same time, the financial services system as a whole had taken their foot off the brake and risk was being ignored.”
In the wake of the crisis, new competitors started to enter the P2P market. “The arrival of other people doing similar things helped to give us credibility: when you’re doing something all on your own, the temptation is to think that you are mad.”
Growth of the P2P industry kept Zopa firmly in the spotlight as well, Giles says: “Whenever anyone in the press wrote about a new P2P service they also wrote about us because we were the pioneers.”
More recently, the creation of a trade association – the Peer to Peer Finance Association (P2PFA), of which Giles was the first chairman – has helped to give the sector more traction with government and regulators.
But the biggest challenge for Zopa in its first 10 years has been creating and maintaining the trust of its customers.
“From the outset, we were confident we’d be able to deliver value for customers,” Giles says. “But the big unknown was: would we be able to convince people to trust us with their money and to trust strangers with their money?
“I’m happy we’ve created that trust and delivered on it. Now that puts us in an incredibly good space to really grow and go into the mainstream. We’re in the best position we’ve ever been in.”
So what will the future hold? Giles wants Zopa to be 10 times bigger by the end of the decade, with a share of between 15 and 20% of the UK unsecured lending market.
“By this point, the act of lending on Zopa will feel totally normal, including to our parents.”