The best way to borrow or lend money?

Shopping around for a loan? Undoubtedly you will want to pay the least possible interest on your loan.

At present they best you can do is to shop around the net or the high street for the best rates. How about borrowing from a complete stranger instead of the traditional lenders like Banks and Building societies?

There is a new outfit called Zopa. Zopa calls itself “ the world’s first lending and borrowing exchange. ” Press release below tell you about Zopa and the people behind it. Zopa may be a better way to lend or borrow than the traditional lending institutes.

What is Zopa?

Zopa is the world’s first lending and borrowing exchange.

What Zopa does is very simple: it puts people who want to lend in touch with creditworthy people who want to borrow. And because there’s no middleman – the borrower just pays a 1% exchange fee to Zopa up front – both should get a great deal.

For the first time, people who want to lend or borrow money have a real alternative to going to a bank, financial institution or big corporation.

What is Zopa not?

It’s not a bank or building society in disguise, just in case you were suspicious. It’s a completely new idea that offers lenders and borrowers a better deal and a greater degree of control than banks and building societies have been able to give them.

How so?

Because in the world of lending and borrowing, things could be much simpler and better.

This is how it works at the moment. Chris borrows money from the bank, which lends it out at a rate of interest which allows it to cover its costs and make a profit. Jenny has some savings in a bank account. Jenny is effectively lending money to the bank, for which the bank pays interest at a modest rate, again covering costs and making a profit.

But this is how it could work. Jenny has money she wants to lend. Chris wants to borrow money. Jenny lends the money to Chris at a rate and for a length of time that suits both of them. Both benefit.

Why lend at Zopa?

Because it’s profitable. Zopa doesn’t charge its lenders a bean – just because we could doesn’t mean that we should – which means that you stand to get a consistently higher rate of interest than you could get elsewhere.

Because it’s controllable. By choosing borrowers at a certain credit level, Zopa lenders can hand-pick their rate of return. Intrepid lenders might choose borrowers at a lower credit level who can give them a higher rate of interest. Cautious lenders may choose borrowers at a higher credit level but then, of course, the rate will be lower.

And because it’s personal. When you invest in Zopa, you’re not putting your money in stocks or shares that you may or may not trust, or in financial products that you may or may not understand; you’re investing your money in real people with real names and real repayment records. People like you, in other words.

Why borrow at Zopa?

Because it’s affordable. When you borrow at Zopa, you should find the interest rates very favourable compared to banks and building societies. Zopa charges its borrowers nothing more than a 1% fee up front. It’s not middleman-less, but it’s very, very close.

Because it’s on your terms. Your credit level, worked out by Equifax from your financial history, determines the Zopa market you can enter. In each market, lenders offer rates of interest that are competitive within that band. The better your credit level, the lower the interest rates on offer. And when you borrow at Zopa, you can wait for the right interest rate. If a rate looks good you can jump in and take it. If a rate looks less good, you can sit it out and see if the rate falls – because if it’s too high to be tempting, it probably will.

And because you’re borrowing from other people like you, not people like Mr. Bank or Mr. Building Society.

Is it safe?

Yes it is - very. Risk for the lender is reduced by spreading loans. Each lender makes loans to at least fifty borrowers, lenders’ exposure to any one borrower is capped at £200, and all loans are backed up by a legally-binding contract.

And if a Zopa borrower suddenly turns to the dark side and defaults on a payment, Zopa gets tough and uses exactly the same recovery processes that the high street banks use.

Why is it called Zopa?

Lender : I won’t lend money for less than this rate.

Borrower : I won’t borrow money for more than that rate.

Fair enough. But if this rate is lower than that rate, then there’s a zone of possible agreement (ZOPA), and if there’s a zone of possible agreement then you’ve probably got an exchange.

Where did Zopa come from?

Zopa was not born of a single, blinding flash of intuition. What happened was less dramatic, and in many ways more interesting. Zopa was discovered.

In autumn 2003, a number of key people behind the successful 1998 launch of the internet bank Egg left in search of new challenges. Among them were: Richard Duvall, the leader of the team that created the Egg concept, and Egg’s launch director and, later, its chief marketing officer; James Alexander, its strategy director; and Dave Nicholson, its group strategy manager.

Richard’s instinct told him that something big was going on that was hidden by the fallout of the Dot Com crash. “I didn’t believe that the technological revolution had run its course, as many seemed to think. Dot Com went bust but the internet never did.” “People’s approach to life was changing in a fundamental way and industry after industry seemed to be going through a transformation, based on the twin forces of technology and the will of the individual.”

They called in Bruce Davis, an independent researcher and consultant with insights into the changing marketplace. “Bruce’s conclusion was that there had been a radical shift in the way people think,” explains Richard. “We used to define ourselves by what we consumed, the brands we wore, the cars we drove and the consumer electronics that we stuffed under the TV set. Now we’re defined much less by brands and more by the things we do, the choices we make, our values and beliefs, our self expression.” This led to the discovery of Freeformers: people who want more control over how they live.

At the same time, Richard was working on his hunch that the technology boom was far from over. He came across the work of a group of socio-economists who were studying the structure of the technological revolutions that had occurred since the 18 th Century. Their conclusion was that each revolution played out in a similar way.

The group’s prediction was that we are entering a “Golden Age” as information technology makes dramatic changes to people’s lives. iPods, gaming, mobile phones, eBay, personal computers and the Internet were just the start of waves of new, more individual, more freeform services.

Highly energised, the team began to develop ideas and formats for new businesses, concentrating on the personal finance sector. The idea of peer-to-peer lending and borrowing was one of them. It was inspired by Dave’s experience working for financial organisations. “Companies can do a lot of financial things that people can’t, like borrowing from each other by issuing bonds.” ‘Why wasn’t there a mechanism to allow people to borrow from other people?’ he wondered.

After they had thrashed out the details, the group went looking for financing. In July 2004, they presented to Benchmark Capital, a leading venture capital company that had backed eBay, Betfair and other peer-to-peer businesses. “We were thrilled because Benchmark are a Manchester United of VCs,” Richard says. Munich-based VC firm Wellington joined Benchmark in backing Zopa. “Both companies are really passionate and committed – it’s been a real partnership.”

Since the financing deal was signed, the Zopa team has grown to twenty-four. With solid backing, they have been able to attract high-calibre people to all the key roles. Many of those that have joined have taken the opportunity for greater flexibility and self-expression. Most have part-time or flexible arrangements.

James, the CFO, spends one day a week working for an environmental charity, Thames 21. Giles Andrews, the chief commercial officer, spends some of his time developing property interests. Wendy Tan, in charge of setting up Zopa’s network marketing channel, divides her time between Zopa, her new baby, her internet software company Moonfruit, and a property business. Adrian, who is based in the operations centre, combines working for Zopa with studying for a degree in business.

“It’s a company for Freeformers - and we want it to stay that way,” says Richard, who also finds time for speaking engagements and helping out another company he co-founded

No-one at Zopa can imagine ever going back to corporate life.

What famous Freeformers say about Zopa

 Alpesh Patel – founder of Tradermind, best-selling author and non-practising barrister

“There’s been a significant attitudinal shift in the last 50 years, a trend towards entrepreneurialism and risk-taking, and Zopa is a reflection of that. In a way, you could argue that Zopa creates a new asset class, a new way of investing – we’ve been borrowers before, but we’ve never directly been the lender. Zopa fits in well with what’s going on. It offers the simplicity of a bank account with better returns. And what’s most impressive is that Zopa convinced Benchmark Capital to back them. That’s a serious achievement. In the future there might be scope for interesting angles, like social or ethical lending, but now the priority for Zopa is critical mass.”

Simon Woodroffe – founder of YO! Sushi and the YO! family of businesses

“Zopa is going to catch people’s imaginations. People will say, ‘If you can do that what else can you do?’ Peer-to-peer lending is not new, but Zopa opens it up. There’s a bit of us as human beings that would love to get rid of the fat cat banks.”

“Zopa would have been absolutely fantastic for me when I was getting started. I would have been high risk and got some borrowing that way. I like the idea of being able to lend to people starting out. I think there are lots of people like that. People don’t always do things just for the idea of making money; they do things because they simply like it.”

Zenna Atkins – social entrepreneur

“Personally, my fire gets lit if there’s a social objective to something. With Zopa, there’s a real potential for expansion, but what excites me is the person-to-person relationship. Instead of having money ferreted away in stocks or savings where you don’t understand what your money’s doing, there’s scope for using it to do something worthwhile. A mechanism that allows intergenerational lending, for instance, is something I find very interesting – older people investing in the new generation. For me, Zopa is about creating different types of sustainable relationship.”

Barefoot Doctor – healer, author and entrepreneur

“In the things I do, I like the excitement of them, the pioneering spirit, a bit of a maverick sensibility. I think Zopa would be a fun way to invest my money.”