There’s a new type of financial service that’s recently been launched. Entitled ‘Zopa’, this online financial service has been around for over 18 months, and reportedly has over 90,000 members.
The concept is simple, people with spare money lend to creditworthy people who want to borrow money. No bank is involved, which means that costs and lending rates are lower. Zopa stands for ‘Zone of Possible Agreement’, and is the overlap between the lowest someone is prepared to get for something and the most another person is prepared to give for something. This zone determines the final price that people will agree to through bargaining.
The Zopa management team are no financial lightweights. Richard Duvall, Zopa’s CEO, led the team that created Egg, and he has brought several of his Egg colleagues onboard. Zopa is backed by Benchmark Capital, the venture capital firm which backed eBay and Skype.
They offer several methods to reduce risk including credit scoring all of the borrower applicants, diversifying loans among a lot of people, handling collections, and offering protection against identity theft.
Zopa relies on the explosion of social community development on the internet. It shows the potential power of Web 2.0 when applied to traditional internet banking channels. Zopa is currently only active in the UK, but expansion is planned in the US. Is this the start of a challenge to the established order? My prediction is that Zopa will be hugely successful, particularly in the US, where social community development is now becoming well established.
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