What is your view on Zopa?

jamesd

It happens that I saw an unusually large amount of money in my Zopa holding account today. The stats on the loans that caused it might be interesting:

£240 lent, £104 capital returned, £66 interest returned on a set of B60 loans to one person at a mean rate of 17.03% for a loan made in late July 2009. For debt consolidation, the loan is still running. Mean rate for the whole loan before Zopa's charges was 13.9%.

£150 lent, £150 capital returned, £32 interest returned on a set of A60 loans to one person at a mean rate of 10.88% for a loan made in December 2008. For a car, loan was just repaid. Mean rate for the whole loan before Zopa's charges was 10.6%.

For the past week the average A60 rate was 7.8% and B60 9.3%. A different world. You can't get those high rates today and you don't see the same spread between lowest and highest matching loan rate either.

Those loans were sized for a much larger loan book than I eventually ended up having. The result is relatively high exposure per borrower so defaults produce quite lumpy changes in bad debt rates for me. The target loan book size was in the £30k plus range, with my maximum exposure per borrower arranged so that at that size no one borrower would end up with more than about 1% of my lending - and if they got that much they would be paying high rates to compensate for the extra exposure I was taking to make up the last bit of funds to reach the amount that they wanted to borrow.

Here's how my various loan categories look at the moment:

Arrangement: average rate 10.86%, £250 of initial lending. A, B, C markets, mostly A.
Closed: average rate 13.75%, £2,340 of initial lending
Collections: average rate 19.96%, £50 of initial lending. A Listing.
Default: average rate 17.05%, £730 of initial lending. Listings, B, C, Y, mostly Y and Listings.
Withdrawn: average rate 14.22%, £2,910 of initial lending

If anyone wonders why at some past times I was more positive about Zopa for investing than I am today, that's a good illustration: the available returns have dropped greatly.

Gorgeous_George

jamesd wrote: »

Which will make you £10 if yours is used, unless I've missed a change in the terms.

Now, what I've done in the past in such discussions is pay 100% of the money to anyone who mentions the discussion, not keeping £10, so that I make nothing from any referrals it generates.

Who pays the tax?

atush wrote: »

I like the Idea of Zopa and have looked into it but: I object to GG's statement:...

...To say there is NO RISK of CAPTIAL LOSS is quite stupid and wrong.

Did I say there was no risk to capital?

Share your first 50 loans between 50 borrowers at £10 each and the risk of losing ALL of your capital is extremely low.

GG

experience08

Gorgeous_George wrote: »

Did I say there was no risk to capital?

Share your first 50 loans between 50 borrowers at £10 each and the risk of losing ALL of your capital is extremely low.

GG

And if Zopa goes broke, will you get any of your 50x£10 investment back?

jamesd

Gorgeous_George wrote: »

Who pays the tax?

There's no tax to pay on the £40 because that's a cost of getting the £10. The tax due is whatever is due on the £10 you net after costs.

It's similar to the Zopa lender fees that are deductible from interest income as a required cost. Bad debt deduction is prohibited by law so is in a different category. There's nothing novel about deducting costs, you get the same with investments, where dealing costs are part of the purchase and sale pricing.

jamesd

experience08 wrote: »

And if Zopa goes broke, will you get any of your 50x£10 investment back?

Zopa has made arrangements to cover this case and in at least one of their annual reports to Companies House their auditors verified it. I'd explained to them why it was good to verify this independently even if we trust them, because there's a difference between trusting an income and seeing the payslip that proves it. It is one of the welcome cases where they took a step that reduced the risk potential for lenders, by eliminating the need to just trust.

The loans themselves are by loan contracts between individuals and what has to be maintained are the payments collection systems and the debt collection activity, because Zopa going bust would probably produce an inrease in those tryign to dodge repaying unless it was clear that it still wouldn't work.

It would still be disruptive, probably, but it's one of the risks that seems to be decently managed and doesn't greatly concern me.

If Zopa did manage to go bust I expect that one of the other players would try to buy the business.

experience08

jamesd wrote: »

Zopa has made arrangements to cover this case

What are these arrangements, not clear from your post.

jamesd wrote: »

If Zopa did manage to go bust I expect that one of the other players would try to buy the business.

There you go, "other players would try to buy the business", but no guarantee or FSA to fall back on...

Geoff23

jamesd wrote: »

If Zopa did manage to go bust I expect that one of the other players would try to buy the business.

I agree. Many of the people using ZOPA are doing so for ideological reasons rather than purely financial ones, both lenders and borrowers. They are doing it because they hate banks.

jamesd

The Peer to Peer Finance Association rules for members require the following:

8. Orderly Run-off
Each Member must make arrangements to ensure the orderly administration of its customers’
contracts in the event the Member or the Member’s Platform ceases to operate. Such
arrangements to include (these can be delegated to a reputable third party):
- sufficient manpower to administer the contracts in run-off;
- a suitable collection and payment process for repayments;
- a suitable disbursement process for net proceeds due to lenders;
- the ability for customers to communicate with the operator;
- maintenance of requisite licence approvals;
- compliance with applicable law, regulations, the Rules and the Operating Principles;
- allowance for office and sundry expenses.

Zopa is one of the founding members. It can be arranged by advance payments to a service provider or having enough money set aside in a non-company account that's immune from company insolvency to cover the operating costs for long enough for loan run-off to complete.

This isn't the sort of thing that might be as good as an FSCS living will and other protections for savings accounts but it should get the job done. The lack of a regulator that could examine and verify the systems is a concern here but at least Zopa has tried with the auditing approach. I think it's less good than the protections that apply to unit trusts and similar investments, but that doesn't make it bad - it's just a relative opinion.

There's definitely no guarantee that someone would buy the business. Just seems likely.

Geoff23 wrote: »

Many of the people using ZOPA are doing so for ideological reasons rather than purely financial ones, both lenders and borrowers. They are doing it because they hate banks.

Or because they like P2P solutions and don't mind using high risk investments, which is roughly my own view of the area.

easteregg_2

You can see the rates on Zopa and some of the other P2P providers after fees, bad debts and taxation on the P2P money web site.

http://www.p2pmoney.co.uk/compare/lend.htm

You can also tweak the bad debt estimates to see the effect on your return.

hayabussa

I have been both a Zopa borrower and lender over the last few years, all was good in the begining; had a few loans, never mised a payment and usually paid off early, but thier charges have increased (Nice little earner that) I've had a couple of defaulters, and got minimal information as to what was going on - but the final straw is that i have just applied to borrow a paltry 9k over 3 years during their current low offer period and been turned down, i received notice via a stock email listing several possible reasons why, none of which were relevant to my circumstances so i called them up to see what had gone wrong and how we could put it right, only to be told that they couldn't discuss it with me - what a ridiculous situation, and how bad for business (lenders & reputation etc) the end result is that i will never entertain Zopa again and advise others not to believe all the 'wonderful, super smashing' BS that they put on their website - this was a very poor performance by people who i believe have grown too big for their boots, and a poor decision for Zopa lenders bye bye zopa