Earlier this year we wrote that Zopa along with some of its fellow P2P lenders had opened up its loan book to an analyst called AltFi Data.
The aim of this is to give customers an even greater level of transparency about how Zopa operates, for example who it lends to, what rates of return lenders receive and the typical length of loan periods. By showing consumers exactly how P2P works, the firm hopes to address any issues they might have about using “alternative” forms of finance.
AltFi has recently published data about how the major loan platforms – Zopa, RateSetter and Funding Circle – are evolving, based on a comparison of the three companies.
The key change AltFi’s analysts have identified is that lenders are increasingly diversifying in terms of the borrowers they lend to. But there is a significant difference in the ways in which these three market-leaders are doing so.
Zopa’s approach has been the most consistent, the research shows: in the 10 years it has been in business, it has until now lent exclusively to consumers (and a small proportion of sole traders) on an unsecured basis and underwritten on their consumer credit data.
The same was true of RateSetter in its first few years of operation, but since 2013 it has introduced secured lending both to consumers and businesses (including property), as well as some unsecured business lending.
Funding Circle on the other hand is totally business-focused, with the majority of its credit supplied on an unsecured basis – but it is increasingly moving into secured lending.
Another aspect of this diversification relates to the riskiness of the people or companies that are being lent to. As a proxy for risk, AltFi looked at the rates borrowers were being charged on their loans – the higher the rate, the greater the risk they are assumed to present.
Zopa was the only one of the platforms to be active during the credit crunch and ensuing recession, and this is reflected in a spike in rates during 2008-9 – for a period the average borrower paid interest at around 8% a year.
Since 2010, Zopa and RateSetter have seen a gradual fall in average rates, perhaps reflecting more stable economic conditions. But for Zopa in particular, there has been a large increase in the spread of rates on offer to borrowers, suggesting that some are being charged below the average and some above it.
AltFi speculates that the rise in the size of loan rate spreads at Zopa coincided with the launch of its Safeguard lending, which acts to provide a blended return to lenders along with a a last line of defence against borrowers failing to repay their debts. AltFi says: “This could indicate a change in lending strategy as Zopa attempts to maintain its pace of growth.”
We will no doubt return to this issue in a future blog as more analysis from the AltFi data team comes out.
One final point – the world of P2P lending is constantly and quickly evolving, and while AltFi is right to say that Zopa has so far only lent on an unsecured basis, the company last week announced a partnership with the on-demand car service Uber to offer secured loans to drivers who want to buy their own vehicles.
The deals are available now on the Uber Marketplace, and Zopa will be making its first secured loans in the very near future.