Virtual borrowers are reaping benefit of personal finance

Zopa may offer a human face, but are its rates competitive, asks Helen Monks

Six months since the launch of the eBay-style online person-to-person financial exchange website, zopa.com, members' ranks have swelled to more than 18,000 and amazingly, no one has been at the receiving end of bad debt.

Zopa allows borrowers and investors to dodge banks by creating a marketplace for individual lenders and borrowers. Would-be lenders display the amount of cash they are prepared to lend to other people for a certain length of time, with different vendors offering different interest rates.

This allows, for example, someone to offer a lower rate and specify they only want to lend to borrowers with a very high likelihood of paying it all back, or others to pick higher rates and take a punt on borrowers who might be slightly more likely to default. Borrowers - who can apply for loans up to £15,000 - can check out rates on offer and if they feel they are good value, agree to borrow without ever having to speak anyone who works for a bank.

New data suggests borrowers and lenders are both receiving strong rates from the exchange. The average gross return for Zopa lenders is 7.6 per cent before predicted bad debt, 6.4 per cent after, while Zopa borrowers are being offered 4.9 per cent APR typical for a £1,000 over 12 months.

Zopa argues that because it cuts out the middleman, everyone gets a great deal. Richard Duvall, the chief executive of Zopa, says: "We deal with the mismatch between people and banks. Our members tell us that banks don't have their best interests at heart; they resent the profits banks are taking out of the system and they dislike dealing with faceless corporations."

Zopa takes its cut by charging borrowers 1 per cent of their debt (though this charge has, so far been waived and is likely to remain ineffective until Christmas) and by taking commission when it sells repayment insurance.

Members are credit checked and asked to supply identification as markets are based on people's credit ratings. If your credit rating is average or low, you are likely to be denied access to lenders' cash. Importantly, Zopa borrowers are unlikely to struggle to get credit elsewhere.

All lenders and borrowers enter into a legally binding contract. Zopa manages the collection of monthly repayments and, if repayments are not made, uses the same sort of recovery processes used by banks. While Zopa has an Office of Fair Trading credit licence, it is only authorised and regulated by the Financial Services Authority in respect of its repayment protection insurance. The protection afforded to Zopa members by the Financial Ombudsman Service and Financial Services Compensation Scheme also only applies to insurance business.

There is also no protection for Zopa members under the UK deposit protection fund which would give lenders 90 per cent of their cash up to £20,000 if their borrowers default.

Some experts advise individual lenders (who are effectively investors) that for the extra risk, they should expect far better rates than they currently receive from Zopa. They also argue lenders and borrowers may be able to get better rates in the conventional saving and investments and borrowing markets. But Duvall argues Zopa is not trying to directly compete with bank savings: "You accept a bit more risk for a higher return and the satisfaction of knowing where your money is going."

However, there are other potential drawbacks to the exchange, including the chance that, on occasion, if you want to borrow there won't be any money available in a particular market, which is no good if you need to secure a cash injection fast.

Zopa is aiming to offer banking products on a human scale, offering an alternative to a world characterised by automated systems and mega profits.

It was this that attracted Simon Clark to the service, who recently lent £1,000 to Zopa borrowers. The 32-year-old management consultancy director from Wargrave in Berkshire says he was attracted to Zopa by the rates and also the ethics of the exchange.

"I wouldn't describe myself as particularly left-wing," he says, "but it's nice to know you're not filling the coffers of some bank."

Assuming his returns aren't seriously dented by bad debt, Simon says he intends to lend more soon.

Zopa believes people are better than banks - more responsible, price more fairly and competitively and are more rewarding to deal with and it will be launching new loan products - on six month, four and five year terms - within the next week.

Compare with the Independent: See how much you could save by switching credit cards. Compare now

Arts & Entertainment
Ricky Gervais at a screening of 'Muppets Most Wanted' in London last month
tvAs the second series of his divisive sitcom 'Derek' hits screens, the comedian on why he'll never bow to critics who habitually circle his work
Arts & Entertainment
Don (John Hamm) and Megan (Jessica Paré) Draper are going their separate ways in the final series of ‘Mad Men’
tvReview: The suits are still sharp, but Don Draper has lost his edge
News
news
Life & Style
Going down: Google's ambition to build an elevator into space isn't likely to be fulfilled any time soon
techTechnology giant’s scientists say there is no material strong enough for a cable from Earth into orbit
VIDEO
News
David Cameron sings a hymn during the enthronement service of The Most Rev Justin Welby as Archbishop of Canterbury, at Canterbury Cathedral last year
news
Life & Style
From long to Jong: Guy Pewsey outside Mo Nabbach’s M&M Hair Academy in west London before the haircut
fashionThe Independent heads to an Ealing hairdressers to try out the North Korean dictator's trademark do
Sport
Vito Mannone fails to keep out Samir Nasri's late strike
sportMan City 2 Sunderland 2: Keeper flaps at Nasri's late leveller, but Black Cat striker's two goals in 10 minutes had already done damage
Extras
indybest10 best smartphones
News
peopleRyan Gosling says yes, science says no. Take the A-list facial hair challenge
Arts & Entertainment
tvCreator Vince Gilligan sheds light on alternate endings
News
Paul Weller, aka the Modfather, performing at last year’s Isle of Wight Festival in Newport
people
Life & Style
Michael Acton Smith founded Firebox straight out of university before creating Moshi Monsters
techHe started out selling silliness with online retailer Firebox, before launching virtual creatures who took the real world by storm
News
Ethical matters: pupils during a philosophy lesson
educationTaunton School's policy of putting philosophy at heart of its curriculum is one of secrets of its success
Arts & Entertainment
Play It Forward: the DC Record Fair in Washington, US
musicIndependent music shops can offer a tempting alternative to downloads on Record Store Day
Sport
video
Finacial products from our partners
Property search
Have you tried new the Independent Digital Edition iPad app?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Data Analyst - Financial services, Client data, LEI

    £40000 - £50000 per annum + BONUS + BENEFITS: Harrington Starr: A leading, Cit...

    Management Consultancy - Operational Research Analysts

    £35000 - £50000 per annum + Bonus + Benefits: Pro-Recruitment Group: You must ...

    Corporate Actions Consultant - Market data, ISO15022, presales

    £45000 - £60000 per annum + BONUS + BENEFITS: Harrington Starr: Corporate Acti...

    Prudential Risk/Operational Risk Associate - London

    £350 - £400 per day: Harrington Starr: An opportunity has arisen at a FCA regu...

    Day In a Page

    Ricky Gervais: 'People are waiting for me to fail. If you think it's awful, then just don't watch it'

    Ricky Gervais: 'People are waiting for me to fail'

    As the second series of his divisive sitcom 'Derek' hits screens, the comedian tells James Rampton why he'll never bow to the critics who habitually circle his work
    Mad Men series 7, TV review: The suits are still sharp, but Don Draper has lost his edge

    Mad Men returns for a final fling

    The suits are still sharp, but Don Draper has lost his edge
    Google finds a lift into space will never get off the ground as there is no material strong enough for a cable from Earth into orbit

    Google finds a lift into space will never get off the ground

    Technology giant’s scientists say there is no material strong enough for a cable from Earth into orbit
    Westminster is awash with tales of young men being sexually harassed - but it's far from being just a problem in politics

    Is sexual harassment a fact of gay life?

    Westminster is awash with tales of young men being sexually harassed - but it's far from being just a problem in politics
    Moshi Monster creator Michael Acton Smith: The man behind a British success story

    Moshi Monster creator Michael Acton Smith

    Acton Smith launched a world of virtual creatures who took the real world by storm
    Kim Jong-un's haircut: The Independent heads to Ealing to try out the dictator's do

    Our journalist tries out Kim Jong-un's haircut

    The North Korean embassy in London complained when M&M Hair Academy used Kim Jong-un's image in the window. Curious, Guy Pewsey heads to the hair salon and surrenders to the clippers
    A History of the First World War in 100 moments: A forgotten naval victory in which even Nature played a part

    A History of the First World War in 100 moments

    A forgotten naval victory in which even Nature played a part
    Vespa rides on with launch of Primavera: Iconic Italian scooter still revving up millions of sales

    Vespa rides on with launch of the Primavera

    The Vespa has been a style icon since the 1950s and the release this month of its latest model confirms it has lost little of its lustre
    Record Store Day: Independent music shops can offer a tempting alternative to downloads

    Record Store Day celebrates independent music shops

    This Saturday sees a host of events around the country to champion the sellers of well-grooved wax
    Taunton's policy of putting philosophy at heart of its curriculum is one of secrets of its success

    Education: Secret of Taunton's success

    Taunton School, in Somerset, is one of the country's leading independent schools, says Richard Garner
    10 best smartphones

    10 best smartphones

    With a number of new smartphones on the market, we round up the best around, including some more established models
    Mickey Arthur: Aussie tells ECB to stick with Ashley Giles

    Mickey Arthur: Aussie tells ECB to stick with Ashley Giles

    The former Australia coach on why England must keep to Plan A, about his shock at their collapse Down Under, why he sent players home from India and the agonies of losing his job
    Homelessness: Why is the supported lodgings lifeline under threat?

    Why is the supported lodgings lifeline under threat?

    Zubairi Sentongo swapped poverty in Uganda for homelessness in Britain. But a YMCA scheme connected him with a couple offering warmth and shelter
    A History of the First World War in 100 Moments: When the world’s biggest shed took over Regent’s Park

    A History of the First World War in 100 Moments

    When the world’s biggest shed took over Regent’s Park
    The pain of IVF

    The pain of IVF

    As an Italian woman vows to keep the babies from someone else’s eggs, Julian Baggini ponders how the reality of childbirth is often messier than the natural ideal