ZOPA: Web 2.0 meets retail banking

If you want to lend or borrow money, ZOPA is a much acclaimed peer-to-peer lending service.


Martin Kupp and Jamie Anderson concede that, as a business, it's a Web 2.0 star. But can it last?

In 2006, the Internet became “hot” again. We saw a strong return of attention by companies, the media, and consumers for new and promising Internet-enabled business ideas – the so- called Web 2.0 phenomenon. Web 2.0 emphasizes online collaboration and sharing among users. Many of the most successful websites made headlines in one way or another. In photo sharing, it was Flickr. In social networking, it was MySpace and Facebook. And, of course, it seems like thousands of videos are shared every hour on YouTube.

One of the new Internet firms grabbing headline attention is Zopa, a UK-based peer-to-peer (P2P) online brokerage that links British residents who want to lend with those who would like to borrow. In Zopa’s world, lenders proffer money not to specific individuals but instead to a pool of people who have been verified to have similar creditworthiness. Launched in March 2005, Zopa started with just 300 members; but, within just a few months, the Internet start-up had grown to more than 25,000 users. By March 2007 more than 140,000 people had signed up, which may be why it won the Red Herring award as one of the best online firms in Europe – a prize given in the past to Google and eBay.

So, will Zopa be the next Google or eBay? That is precisely the question we have been asking. Our answer might surprise you.

A start-up is born

Zopa was co-founded by CEO Richard Duvall, chief financial officer James Alexander and “business architect” David Nicholson. Duvall passed away after a battle with cancer in October 2006, and Alexander took over. All were involved with Egg, the online bank that was started in 1998. In 2007, Doug Dolton – highly experienced in the unsecured lending industry – became Zopa’s global CEO.

Zopa received more than £16 million in start-up funding from Benchmark Capital (which also backed eBay’s launch), Bessemer Venture Partners (which also backed Skype’s start), Wellington Partners, and private investors. Savvy capitalists have been keen on Zopa from the beginning.

Zopa stands for “Zone of Possible Agreement”, a term from negotiation theory. It refers to the overlap between one person’s bottom line (the lowest they’re prepared to receive for something they are offering) and another person’s top line (the most they’re prepared to pay for something). In practice, this approach underpins negotiations about the majority of products and services: a new car is sold for somewhere between the dealer’s absolute lowest price and the buyer’s highest willingness to pay.

The idea for Zopa was born from market research conducted by the company’s founding team that showed there was a growing potential market of “freeformers”. These were defined as self-employed, project-based or freelance workers who were not in standard full-time employment. Consequently, their incomes and lifestyles could be irregular, although they may still have been assessed as creditworthy. Freeformers were identified as being either underserved by existing financial services institutions or as people who simply didn’t want to deal with such firms. Zopa’s consumer research indicated a large number of freeformers in the United Kingdom – possibly as many as 6 million of UK’s 60 million population.

A borrower or a lender be

People join Zopa online as either borrowers or lenders. Once registered, lenders can loan money to a pool of people grouped together because of similar creditworthiness. Zopa assesses the credit scores of borrowers using the same Equifax-based credit ratings as used by UK retail banks and lenders. Zopa only offers services to borrowers who have achieved an Equifax rating of A*, A, B or C. The online bank also engages an agency to verify the identity of all lenders and borrowers, and Zopa’s own team of underwriters individually assesses each borrower’s ability to repay. After that, borrowers are assigned to a corresponding “lending pool” of people with the same level of creditworthiness.

Zopa has tried to lock down its proprietary marketplace-matching platform, but it recognizes that the broader concept of P2P lending cannot, in itself, be protected from replication. Two other peer- to-peer lending sites ( and have already been established in Korea and the United States.

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