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“P2P”, invented by Zopa in 2005, was one of the main unique business models that was at the core of the early success of Fintech businesses in disintermediating banks and offering better/cheaper/faster experiences to both lenders and borrowers. Over the past nearly two decades P2Ps have had many fates – variously succeeding, going bust, committing fraud, listing, being sold and transforming into banks .
In this episode we dive into the lessons learned from this history with Jaidev Zopa’s CEO who oversaw the transformation of Zopa from a pure P2P model to one mixed with banking and then more recently dropping P2P altogether.
What lessons can be drawn from the whole experiment? What worked well and what did not? What was it in the end. what set of circumstances, that led the firm that originated the whole idea to abandon it?
In this conversation Jaidev and I discuss the two-decade arc from both our perspectives from P2P not existing, through P2P existed but we didn’t know of it, through to hearing about it and initial reactions with a deeper dive into Jaidev’s years starting in 2014 first as COO and then as the CEO who drove the recent changes in business model.
We end with reflections on not just in what ways is the current Zopa different but also in what ways is it the same? One may change an engine in a car without affecting the car’s appearance, appeal and indeed destinations it drives to.
- what a crisis in domestic banking amounted to in the 1970s
- Jaidev’s childhood family experience of the positives and negatives of borrowing as experienced by his family and how that has changed his attitude to the business to this day
- the two-sided coin of FS – the numbers and the people affected by the numbers
- having senior management listen in to challenging calls with customers
- the changing morality over time and geography of whether the lender or borrower is seen as morally at fault when things go wrong
- Jaidev’s career development from training as an engineer
- when Jaidev first became aware of P2P and his perspective then along with overlaps with his work at Capital One
- my strategic critiques back in the day of the ~”cheaper” rather than needing to be say 10x “cheaper” than banks as well as the lack of an equivalent to the interbank market
- the Zopa t-shirt and Jaidev’s reaction
- the helpful aspects of the P2P market which were necessary to success but in a way able to be implemented using different models
- an unchanged value-proposition at Zopa over the period
- Zopa’s long-term very low default rate from unsecured consumer lending – which is very notable
- default rates have been around 3%
- constraints in the P2P model
- where it worked well
- being a “credit broker” versus holding some risk oneself
- comparison of Fintechs who are effectively farmers versus those who are hunter-gatherers
- the advantage of being able to offer lending and borrowing products via P2P in terms of not requiring large amounts of capital or super-long regulatory approval process compared to a bank – and thus the usage of P2P with hindsight to bootstrap into a bank
- the need that Zopa found to diversify products and income streams to wider categories of lending and borrowing – the large restriction implicit in where P2P worked well
- the emotional reactions to Zopa becoming a bank and then later closing the P2P business line
- how does cost of customer acquisition versus the comparatively low cross-selling possibilities compared to a full suite of banking lending products affect the P2P model?
- the payback period of typical Zopa products for the business
- implications of differential Target Addressable Markets for P2P and banking models
- Zopa’s banking transition, like its invention of P2P being taken up later in the US eg by Lending Club and Sofi
- what has surprised Jaidev in the transformation of Zopa into a Bank in the past few years – what has gone slower and what faster?
- what are Jaidev’s thoughts and feelings now looking back on the transformation of Zopa
- the confluence of external factors that led to Zopa withdrawing from P2P
- badly-run to fraudulent P2Ps leading to platform failures which damaged the sectors reputation
- regulators tightening the regulation as a result which made P2P less attractive
- the cost of “doing credit well” can make a return in P2P but perhaps not a sufficient return for the capital providers compared to the wider banking model
- flight to safety during Covid leading to a drying up of funding
- the single main factor to the loss of strategic appeal of P2P
- Funding Circle being supported by the Governments business support lending schemes during Covid
- in what ways is Zopa now fundamentally the same as Zopa back int he day in terms of what it aims to provide for its customers?
- new products – Zopa’s debt consolidation calculator which saves the average customer £300
- the huge size of the current addressable market for Zopa
- how Jaidev sees the next five years and Zopa’s plans for the future
And much much more 🙂
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