Keeping one step ahead
What’s the next move for the world’s oldest peer-to-peer lending business? Zopa’s new P2P chief Natasha Wear talks to Andrew Saunders about growing the P2P division alongside the bank, keeping on top of tech and the feelgood rebrand…
NOW THAT ZOPA IS being reborn as a bank, will that mean less focus on its established peer-to-peer lending business and more on growing its glamorous new savings and credit card products instead?
It’s a question many of the platform’s retail investors have been asking themselves since the platform’s banking licence was granted back in December. And the person arguably best placed to answer it is Zopa’s newly-appointed P2P chief executive Natasha Wear.
In a word, no, says Wear. P2P made the platform what it is and Zopa will be keeping the faith with its established customers whilst at the same time broadening its appeal to a whole range of new ones.
“We are still really excited about the P2P opportunity,” she states.
“We believe there is still a big opportunity to grow as P2P sits right in the middle of savings and stocks and shares in terms of risk and return and is a great alternative to the incumbents. The returns we offer are inflation beating, but you don’t have the same volatility that you have seen in the stock market in 2018 for example.”
The plan is that rather than competing for management time and investment, the two parts of the business will actually feed off one another and create a new whole that is more than the sum of its parts.
“Zopa is the first company that will have a bank and a P2P business alongside each other,” Wear says. “We hope our P2P investors will be the first customers for our new savings product – we built that product with them in mind as it was something they were asking for. We will focus on what we always have – our existing customers and making sure that we have the best products for them first.”
Read more: Zopa distances P2P from mini-bonds
Consequently, Wear and her 30-strong team are hard at work making sure the P2P offering keeps developing. “We’re really investing in our P2P tech platform, that’s the focus for now,” she comments.
“Then we will be looking at the un-met needs of UK consumers in terms of savings and investments, and how we can take some of the underlying characteristics of the P2P asset class and better meet those needs.”
In due course, she says, that will likely mean some new P2P products – or new versions of existing products. She won’t be drawn on details but drops a few hints as to what her broad intentions are. “We’re looking at a number of avenues – it will essentially be about how we help customers achieve their financial goals,” she explains. “How we support people with a medium-term horizon who are looking to build up an investment habit.”
Those new products won’t arrive for a while, but in the meantime improvements to Zopa’s auto-diversification technology are on the cards. The system currently splits investors’ money into £10 chunks which are then allocated to different loans in order to spread the risk of any defaults between multiple lenders. So the 300,000 or so active borrowers on the platform actually generate around 70 million diversified ‘microloans’.
It works well but it could work better, Wear says. “A general rule of investing is that more diversification is better,” she asserts. “So we are looking to go to £3 chunks by the end of the year and ideally down to £1 chunks at some point after that.”
As is so often the case, what is simple in principle becomes more complex in practice – the change requires the platform to be able to support up to 300 million of the new, smaller microloans, more than three times as many as it currently does.
“Zopa’s been around for 14 years, the models we have in our system are built on tech that use classic database structures,” Wear explains. “Now we want to move to more event-driven data models that are more supportive of that scale.”
Investors will also be able to manage their Zopa accounts on the firm’s mobile app later this year, another incremental improvement that has required substantial work behind the scenes. “Things like payment journeys have to change when you are mobile first,” she says. “We have been investing in new bank technologies but also in P2P.”
It’s particularly important for Zopa to keep on top of tech – as the most mature P2P business around it has more historic data on loan performance and credit risk than rivals, but it’s also potentially at greater risk of being disrupted.
“You have to keep investing in the tech because as soon as you stop you will be behind,” says Wear. “Zopa was launched two years before the first iPhone – everyone was using a desktop and so they were happy to wait five seconds for their loanbooks to load. Now everything has to be fast and seamless on mobiles.”
Like many industry players, Zopa has also been focused on promoting its Innovative Finance ISA (IFISA) in the lead-up to the end of the tax year, as investors clamour to make the most of their tax-free allowance.
Zopa has been making efforts to educate would-be customers on the pros and cons of the P2P tax wrapper. “Our existing customers are split pretty evenly between ISA and non-ISA investments,” Wear reveals. ‘Inflows [into the ISA] come predominantly from existing customers transferring historical balances, usually from cash ISAs. Those teaser rates that you get which very rapidly become less than one per cent.”
What that means, she adds, is that while the ISA is a great alternative for investors with a mid-term, mid-risk appetite, it still depends on a supply of customers who are familiar with the nature of P2P loans. “It’s been an interesting area of growth for our existing customers who understand P2P and are now able to use the tax-free wrapper,” she explains. “But in its own right it is not going to be the thing that drives huge volume.’
One of the clear bottlenecks in the ISA transfer market, she adds, is the transfer process itself whose reliance on wet signatures is a throwback to the cheque era and puts people off. “The wet signature bit is a hurdle for customers,” Wear says. “We try to make it as quick as we can on our side but it’s an area we should be encouraging a more seamless experience in.”
Wear was previously head of investment products at Zopa and has been promoted to P2P chief executive as part of a raft of management changes, including the appointment of ex-Virgin Management boss Gordon McCallum as chairman and three new non-executive directors. Cofounder Giles Andrews will step down as chairman but retains a place on the board.
Her new job is, she says, very much an extension of her old one. “The P2P role leverages my existing role – it’s growing my remit rather than doing something completely new,” she explains.
Before she joined Zopa in 2015 she spent five years as a strategy consultant. What was the biggest surprise moving from the world of corporate consulting to Zopa’s more entrepreneurial culture?
Probably the unpredictability, Wear says. “You come to work thinking that this is going to be your focus for the day, then something happens and your focus is somewhere else. Reflecting on myself four years ago, that would have caused a certain amount of stress. But I like it now, it’s just more real. It would be boring to go back.”
Alongside these top team changes, the platform also has a new strapline – ‘The feelgood money company’. What’s behind the change?
“It’s an articulation of what we’ve always done,” Wear comments. “We offer simple and fair financial products that put people in control. I think it’s just the first time that we’ve managed to find a single word – feelgood – that we can all stand behind.”
Looking ahead, Brexit woes, slowing economic growth and rising personal insolvencies are potential headwinds for most lenders, but Wear is confident about Zopa’s outlook.
“We are dependent on the UK economy so we need to pay close attention to anything that causes uncertainty,” she explains.
“One interesting trend we have seen is customers [of other lenders] looking around. Halfway through a loan term they start looking around for consolidation options. There is better education in the market about what rates you can get, which is great for consumers.”
With incomes typically 50 per cent higher than the national average, Zopa’s customers are perhaps reasonably well insulated from chilly economic winds. And even if factors such as rising levels of personal insolvencies start to feed through to the lending market, she thinks that Zopa is better placed than many traditional lenders both to make good credit decisions and respond quickly to any threats that do emerge.
“We have a strong risk analytics team, so we are confident that we are analysing the data in the right way and making good decisions against it,” Wear asserts.
“And on the execution side our tech platform means that we can react more quickly than incumbents. We tightened our credit policy on the same day as the Brexit vote happened. A large company might take three months on that decision and execution.”
So just because Zopa is becoming a bank, it doesn’t mean that it will start to behave like one – or at least not like the self-serving high street archetype that so many consumers still put up with. “The really strong values are one of the reasons I joined Zopa,” says Wear. “We put existing customers first, we don’t rest on our laurels, and we’re always looking to move the market on.”
This article featured in the April issue of Peer2Peer Finance News, now available to read online.