During these uncertain times, we have seen lots of different peer-to-peer (P2P) platforms taking different approaches to mitigate the disruption caused. The variance in approach, at its core, is due to the fact that if you look under the hood, each platform has their own model and way of operating.
Here’s what makes Zopa distinctive.
The asset you invest in: prime consumer loans
We have always specialised in low risk consumer loans at a fixed interest rate. By providing a smooth application and approval process, we serve prime loan customers who choose us over competitors, mainly high street banks, because of the seamless experience and value that we provide.
The majority of our borrowers are homeowners and can demonstrate a strong track record of repaying debt. They have an average income of £40,000 and have high levels of disposable income, by which we mean the amount they have left over each month after regular outgoings, such as mortgage payments.. Focusing on prime customers, we have originated over 730,000 loans with an average loan size of £7,000. All of these have set monthly repayments to cover their loan over an agreed term
Here’s how this combination benefits you and your investment:
- Diversification: Small loan sizes combined with diversifying your investment across at least 100 loans means that any individual default does not significantly impact your investment, or Zopa. In contrast, investment platforms focused on large loans, such as those in property development, can be seriously impacted by the performance of just a small set of loans.
- Volatility: While the Coronavirus is providing new challenges, most experts continue to believe that consumer lending performance will still be less volatile than property development, commercial real estate and business lending through this crisis.
- Regular repayments: Your investment is set up to have a predictable repayment pattern. Loan terms are shorter – maxing at 5 years in length – compared to other types of lending like property development or mortgages, with regular repayments due throughout the term. There are no ‘interest only loans’ or bullet repayment loans – in which large lump sums are repaid at the end of the loan term – in your portfolio. This means that your loan performance is easy to track through your loan book and you won’t have big, sudden surprises, such as a bullet loan failing to pay back.
Our approach to underwriting and our track record
We are in a strong position to face the current uncertainty. As the first P2P platform, we’ve seen a lot in our time, navigating the 2007-2008 financial crisis while delivering positive returns for our investors. We did this by adapting quickly and focusing on low risk borrowers, while ensuring investors’ loan books were built to absorb economic turbulence.
For your investment today, we have stayed true to this, building portfolios of loans that are set up to withstand shocks in line with what we saw in the 2007/08 crisis. We do this by continuously optimising our credit policy. We had been tightening lending criteria in 2019 and early 2020, even before the impact of the Coronavirus hit the UK.
Diversified sources of funding: A further source of assurance
This is why we have such a loyal base of retail investors – on average, investors stay with Zopa for six years, though some have remained with us from the beginning – for which we are enormously grateful. Our approach has also built the confidence of institutions, who trust Zopa with their substantial investments. These businesses have the resources to run thorough due diligence on our platform and lending criteria before choosing to invest with us, reflecting their belief in our lending approach. Our retail investors can take comfort from the fact that they invest in identical loans to these banks and asset managers.
Our loan assets have also become the first ever P2P securitisation to achieve a AAA rating at issuance. This was the third securitisation of loans originated through our platform, which again reflects the market’s confidence in our ability to originate high quality loans which make up your loan book.
Holding ourselves to higher standards
We hold ourselves to the highest of standards. We have always been at the forefront of campaigning for regulation and oversight in the P2P industry and have been regulated by the FCA since 2014. However, as we build towards the launch of our bank, which will operate alongside our P2P business, we have also taken some of the stricter operating controls and governance structures that are required of a bank and applied this level of rigour to our P2P business. These more stringent measures compared to other platforms mean your investment is managed with a unique level of prudence.
Transparency is central to what we do. We strive to give you a clear picture of your investment through a detailed, personal loan book which all investors can download from their account. This gives you granular detail on how your investment is performing, allowing you to make informed decisions regarding your investment. We also regularly disclose overall loan performance by year on our website for anybody to scrutinise, such as those considering investing in with Zopa.
Strength of the company
All of this comes from our solid foundation, being a well-funded company with strong fundamentals. Our P2P business has been profitable since 2016. As we work towards bank launch, we signed our largest ever round of funding, at £140 million in December. Our backers are in with us for the long term and are excited to be a part of the next stage of our journey
All of the above leaves us confident that the measures we have in place will allow us to navigate these uncertain times. Our position of strength means we can focus on the long term outlook of your investment. We are ready to make adjustments whenever required and will continue to use all of our experience to provide low risk investments with stable returns.