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Peer2Peer Finance News | December 17, 2017

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Zopa addresses default concerns by reforming how returns are displayed

Zopa addresses default concerns by reforming how returns are displayed
Marc Shoffman

ZOPA is working on improving the way long-term returns are displayed so investors do not become overly concerned with monthly defaults in their portfolio.

The peer-to-peer lender said it is working on a prototype that would show investors their current portfolio performance, a range of what their returns will be and what their target rate is.

The display, currently in testing, includes a graph showing portfolio growth, and the net cash earnings after losses, a range of what the returns will be that narrows closer to maturity and what the target rate is in comparison to what was advertised.

The platform said its higher-risk Plus account, offering 4.5 per cent interest, had become the most popular, with investors earning 5.9 per cent on average.

But around four out of five investors have had up to three months where losses from defaults are higher than earnings.

Andrew Lawson (pictured,) chief product officer for Zopa said this was because the loans default at different times, so there will be some months with high earnings, and some months with low, or even negative earnings.

He said it was better to look at performance over the long-term rather than focusing on monthly returns.

Read more: Zopa unveils IFISA

Read more: Zopa revamps credit risk assessment model

“If you’re tracking your own investment performance in your monthly statements you may see months where losses from defaults are more than your earnings from interest, and we know that can be alarming,” Lawson said in a blog post on the company’s website on Thursday.

“Because the loans default at different times, you’ll get some months with high earnings, and some months with low, or even negative earnings.

“We’re pleased that Plus is behaving how we expect it to overall. But it’s clear that we need to make it easier for you to understand your total returns, and we’d like to have a much more consistent experience between investors so more people get the average performance.

“We are working on better ways to show your returns to date, and where we think it will finish up given the loans you own.”

Lawson said the platform hoped to have a new offering ready before March 2018.

Read more: Zopa developing IFISA transfer features