What does the future look like for the world’s oldest peer-to-peer lender once it becomes a bank? Peer2Peer Finance News speaks to Zopa’s chief product officer Andrew Lawson about technology, ‘tribes’, and the importance of P2P for the business…
ZOPA may be the world’s oldest peer-to-peer lender, but to the visitor in many ways it still feels like a start-up. The simple open plan office, the break-out groups deep in conversation huddled around their laptops, the founders and senior leadership sat not in swanky corner offices but at regular desks just like everyone else. There’s the distinct sense of purpose about the place that usually denotes a young business urgently seeking growth.
That the entrepreneurial buzz remains strong after 13 years of relentless year-on-year expansion is no accident, according to chief product officer Andrew Lawson.
“This is a very purpose-driven company and having that customer-obsessed culture is what keeps that agility and entrepreneurial spirit alive,” he says.
“It’s about being a company with a track record but not too many of the disadvantages that can sometimes come with that.”
Of course it is all on a rather grander scale than your average startup – it now employs over 300 ‘Zopians’ and since it opened its doors back in 2005, Zopa has lent more than £3bn to over 311,000 borrowers, making it not only the oldest P2P lender but also one of the largest. In the UK only Funding Circle has lent more – although it is a business rather than a consumer lender, so not a direct competitor, a keen rivalry between the two big beasts of Brit P2P clearly exists.
Right now, a good deal of Zopa’s energy and purpose is being directed at what will be the next – perhaps biggest ever – milestone in the company’s history, and one that might unlock another phase of even more impressive growth: launching a bank.
The fact that Zopa has applied for a banking licence and is in the throes of development is no secret of course. Exactly how long the journey to approval may take is more hush hush, although Zopa’s jobs ads for software developers indicate that a launch is likely to happen by the end of this year.
The preparations are well under way, says Lawson, whose principal involvement in the bank has been on the build side.
“What has surprised us a little there is that some of the things you would expect to be off the shelf just weren’t fit for purpose,” he explains.
“For example – none of the off-the-shelf deposit products can tell you, at the end of the term, what your pot is going to be worth. It’s not a terribly complicated calculation but as a customer you have to go and do it yourself in Excel. We just didn’t think that worked for today’s customers.”
So rather than buying in products such as a deposit account system, Lawson and his team have opted instead for a more DIY approach.
“We went down a path of building a lot for ourselves, probably more than we initially thought,” he says. “The build has been pretty big.”
Fortunately, he has been able to call on the services of Zopa’s tech hub in Barcelona, opened last year in anticipation of an increasing need for developers, not only from the bank launch but also from the day-to-day P2P lending activity.
“Some of the Barcelona people have been involved [in the bank],” Lawson affirms. “Recruiting for tech talent in London is very competitive, because we compete with Facebook and Google rather than Barclays and Santander on this. Barcelona has been a great way for us to scale up the tech.”
But why is Zopa is going to such lengths to launch a bank anyway? The appeal of the P2P sector to many of its existing punters depends precisely on its players not being banks, after all.
Lawson – whose responsibilities cover products, customer acquisition and experience, first line credit risk, pricing yield and data science – says that it is largely a response to customer demand, both from investors and borrowers.
“When we talk to our investors, they come back and say that they would love to have a bit more security,” he reveals. “That means offering Financial Services Compensation Schemebacked deposit taking, so that’s one of the drivers.
“On the other side, while P2P works great for unsecured personal loans, borrowers are asking for products that P2P isn’t so naturally set for, like credit cards and longer-term debt.
“So becoming a bank will allow us to provide a much wider remit for our customers.”
Essentially, having government-guaranteed deposit accounts will provide investors with more security on their money whilst also allowing Zopa to escape one of the fundamental limitations of the P2P model – the constant balancing act of matching funds taken with funds lent, and the fact that there is generally more of one than the other. (Only last year Zopa had to close its platform to new money for some time, due to an oversupply of investment and an undersupply of borrowers).
“Our mission is around making Zopa the best place for people’s money,” states Lawson. “There are plenty of markets out there on the retail banking side that right now we are not addressing.”
Not many other P2P platforms have either the wherewithal or inclination to follow Zopa down the banking licence route, but one industry-wide development that does have the potential to impact the whole sector is Open Banking. While many other platforms are adopting a wait-and-see approach, Zopa has enthusiastically embraced the potential of Open Banking – which enables customers to grant third-party access to their bank account data.
“At the moment we are using it to make the borrower journey easier,” he says. “For the majority of people in the UK today, taking an unsecured loan is still a mix of online and offline processes – printing off documents and providing wet ink signatures. It doesn’t have to be like that.” One example, he explains, is when a would-be borrower needs to provide more information, such as a bank statement to verify their income.
“Some people don’t know what a bank statement is, because banks have stopped sending them. They get an ATM slip instead but that’s not the same. It just created a customer problem.”
Open Banking will help to address this. “Where the customer gives us permission, we can go in and grab the data we need,” he says.
And despite fears that decades of ‘don’t share your bank details with anyone’ security messages might have made customers nervous about granting that permission, Lawson says that the early signs are promising.
“One of the things that has surprised and encouraged me is that, when we do need to verify something, half the people already choose to go down the Open Banking route. And that was only in the first month after going live.
“So customer appetite is already very strong and we’re only just scratching the surface of what the benefits could be.”
The benefits he is alluding to are the range of new products and services that can be built on the back of Open Banking APIs.
“The next wave is the value-added services that it will enable – insights or actions based,” he says. Many of us, he adds, have floats in our current accounts that are larger than we really need on one side, and expensive debts on the other.
Running with less in your current account could mean quicker repayment of debts and an overall improvement in your financial outlook.
“But no-one is giving you that complete picture,” he asserts. “It’s a great opportunity, and we have already prototyped something that can provide useful insights and help you feel in control of your financial decisions rather than being sold products.”
He’s careful to point out that Zopa is not about to start offering regulated financial advice, but rather “insights into the broader picture in a customer-friendly way that puts them in control”.
‘Customer obsession’ is a well-known Zopa mantra, and one of the more unusual ways in which it is applied is in the team structure within the business. Rather than the usual functional departments – marketing, tech, sales and so on – Zopa’s people are divided into cross-functional ‘Tribes’, each focussed on a particular customer area like unsecured consumer loans, or P2P investment.
“What we found when we had a functional model was that we had great data and analytics people and great tech people, for example, but they weren’t really understanding each other,” Lawson explains.
“With the cross-functional model each tribe has ownership of the customer and of solving problems for the customer. The innovation is much more effective.”
It’s all in the name of providing a faster and better customer experience. “We are competing for customers that banks want to lend to, so the only way we can do that is by providing better value and a better experience,” he says.
With the new bank and Open Banking firmly on the agenda, will Zopa’s core business of P2P lending have to take a back seat? Lawson thinks not. “P2P is a really good discipline for being a responsible lender; it means you have to put long-term customer returns above everything else. It relies on trust.”
There is another advantage to P2P which doesn’t get talked about as much as it should, he says. “A traditional bank or balance sheet lender looks at the averages across their loan book. It’s quite hard to spot stuff if you are only looking at averages – little things that might be anomalies but might also be signals of things to come.
“We have 60,000 lenders – 60,000 different views on our loan book. That forces us to be much more in command of what is going on at a de-averaged level. It’s almost like crowd-sourced portfolio management – keeping that is a really important part of our business model.”
So the world’s oldest P2P lender may be in the process of becoming one of its youngest banks, but according to Lawson, it is not about to lose sight of its roots.
This story appeared in the April issue of Peer2Peer Finance News, now available to read online.