Zopa: How a Team of Five Built a Multi-Billion-Dollar Industry
It takes only seven minutes for a person to create a peer-to-peer lending account.
Yes, it sounds all easy-peasy now, yet, back in the day, developing lending accounts was no walk in the park. This is a story of one resilient company that not only pioneered P2P lending but also paved the path for other up-and-coming crowd lenders.
First established in 2004, as a collaboration of five, Zopa blew a breath of encouragement to the business world of lending, ultimately transforming it into a multi-billion-dollar industry.
How did these five brilliant minds revolutionize lending, to begin with?
Read on to learn how perseverance broke the idea of successful lending out of its shell, helping it bloom into an imminent global success.
The Five Co-Founders
The story of Zopa begins with an elaborate discussion between four co-workers on the mishaps and flaws of today's banking system. For Richard Duvall, David Nicholson, James Alexander and Tim Parlett, changing the game of lending and borrowing cash was nothing short of groundbreaking and essential.
Driven by their initial idea of practical and safe lending, the foursome made it their mission to create an entirely new platform for users. The main idea behind the project was to, simply, help people lend and borrow money from one another instead of turning to banks for help.
The concept was built based on four different specialities- economics, management, business administration, and history. Each of the then-four co founders masterminded their own concept on lending money, and then, brought the idea to the table.
The final case for creating Zopa came from a single realization the team had- that 'too many cooks make a lavish and rich buffet'. Now, it was time that the rest got a taste of that exclusive business feast and for that, Zopa needed a fifth 'cook'.
A phone call later, Giles Andrews, a graduate in business from the other side of the Channel Tunnel, joined the team of innovators. Anon, four became five and a start-up vision would soon make way to what'll be globally known as Zopa.
First Businesses, First Successes
Before concluding his business studies, Giles Andrews acquired a Master's degree in experimental psychology and spent well over a decade in the automotive industry.
In 1992, Giles finally opened his first company called Caverdale. However, with the arrival of the 90s' economic decline, the automotive industry would suffer tremendously. Although passionate about his project, Giles decided that a fresh start was well overdue and so, he pursued business studies in France.
As completion followed, Giles immersed himself in the start-up business, mainly working as an angel investor. The opportunity to acquire information on how entrepreneurs bootstrap their mega-companies from scratch, encouraged Giles to also have his turn in the business.
Little did he know that a business call proposition with Zopa's name written all over it was already waiting for him on the other side of the line.
The Idea Grows on
Back in 2004, there was a growing number of freelance, project-based and self-employed workforce.
Due to their irregular income, banks refused to loan money to these categories of workers which ultimately cost them their clients' trust. Frustrated with the less-than-favourable treatment by banks, the Zopa Five relied on their earned cash to make a different kind of investment.
It didn't take the team long to realize that the aggravation with the manipulative ways of banking would only continue to rise. So, what did they decide to do instead? Well, make the most of the situation, of course! A brainstorm of ideas later- including generating credit markets and appealing to the wider public- an obtainable concept was born.
The initial vision of the team was to restructure the traditional methods of lending and borrowing money, and engage users to use it. Not just that, but the to-be-developed process was to be simplified and adjusted to what the public needed at the time.
All team members struggled to find a solution to the ever-complex world of finance, but it was real-life experiences that would ultimately help the group excel.
For James Alexander, the first step to facilitating borrowing and lending money was to- drum roll, please- borrow money, and from no one else but his father. With the idea already puzzling itself in the back of his mind, James figured that lending money from a person rather than a bank was simpler, more efficient, and super-practical.
Next thing you know, James proposed a very keen idea to his team - to develop a platform to enable two individual negotiators to mutually agree on either borrowing or lending cash. Once the idea was shaped in the greatest of depths, the quartet joined Giles Andrews in a founding story to remember.
The Rise and Fall, and Rise Again
Alas, Zopa was launched in 2005, with Richard Duvall as its chief executive officer. Initially, the platform connected lenders with borrowers, offering higher returns to the first and lower interest rates to the latter. As neither service was offered by banks at the time, Zopa gained an instant customer base and gained a solid reputation in cash management.
Unfortunately, the company's future would shatter at the unexpected death of CEO Richard Duvall in 2006. Having lost one of the most crucial pillars in building the company, three of the four remaining four co-founders would, one by one, abandon Zopa as a project, ultimately leaving Giles to his own devices.
After two years of silence and average-size company management, the 2008 bank crisis rolled in to make Zopa even stronger than before. You might not remember it, but the 2008 crisis cost banks delirious amounts of money in mortgage defaults, causing interbank credit to freeze. Faced with a do-or-die situation, Giles saw an opportunity right in midst of the chaos and presented his risk management strategy to the public.
Lucky for Giles, the monumental shift in the banking sector allowed brand new financial institutions, like Zopa, to finally thrive. Even despite its competitors, Zopa earned credibility in the eyes of prominent clients, all thanks to the way it performed, the promises it made and the strategic solutions it delivered in return.
A Money-Making Business
The main way Zopa operated was through splitting the lenders' money in chunks and dividing them among clients who needed cash to purchase a new vehicle, cover wedding costs or even renovate a home.
Unlike traditional banking, Zopa's lenders can create their own interest rates, ultimately allowing borrowers to take their pick from the variety of clients in need.
Not only does the company allow clients to make their own decisions it also guarantees them a fully safe experience, executed through creating a credit check which assures clients they'll be able to pay up their debt. At the same time, lenders could also track their borrowers, which left no room for risky business transactions.
Most importantly - Zopa earns all its money through reinvesting investors' repayments, thus earning more interest on top of the initially agreed interest. Through its efficient and simplified platform, Zopa has helped over 200,000 customers to borrow or lend money worldwide. In 2015, the company grossed £1 billion, £57 million of which returned to lenders.
While there is no detailed record on Zopa's first seed funding, it is known that over the course of 15 years, the company has received over 17 funding rounds in total. Some of its most recent investors include Northzone, Wadhawan Global Capital, Forward Partners, Augmentum Capital, Venture Founders and IAG Capital Partners, to name a few.
Just for comparison, in 2020, Zopa managed to raise a total of £347.13 million.
In late 2018, and after raising a total of £140 million by IAG Silverstripe, Zopa was finally approved for a banking license.
Obtaining a banking license for Zopa essentially meant that the company traders were now to enjoy maximum protection provided by the Financial Services Compensation Scheme (FSCS), much like any other traditional bank. Even more, the FSCS protects traders' deposits of approximately £85,000 and guarantees its investors compensation in the case of fraud.
With the arrival of 2019, Zopa launched its credit card to help its customers maintain control over their funds through both managing their snap ups and blocking gambling purchases.
With over 300 employees in its court and establishing two main headquarters in both London and Barcelona, Zopa's 2020 revenue scored a whopping £47.58 million. In 2015, Giles stepped down as the company CEO to be replaced by Jaidev Janardana, but he continued to lead the company as Chairman until 2019, after which he remained an active board member, a deserving role he serves to this day.
As Giles likes to put it - serving well is all about constantly learning, evolving with your customer's needs, and remaining flexible every step of the way!