zopa

E-BUSINESS

BY

PRASHANT SINGH (www.enter10me.in)

CASE

STUDY ON

WWW.ZOPA.COM

A case study on www.Zopa.com by Prashant Singh, MBA. (Tech) – Computer Science,

Roll No.327, email id: [email protected]. Page 1

Table Of Contents

Topic Page No.

1. Introduction ------------------------------------------------------------------------------------------- 2

2. Business Model -------------------------------------------------------------------------------------- 2

3. Customer Value Proposition --------------------------------------------------------------------- 3

4. Revenue Model -------------------------------------------------------------------------------------- 4

5. Target Market Place -------------------------------------------------------------------------------- 5

6. Main Market Competetors ----------------------------------------------------------------------- 5

7. Comparative Advantages -------------------------------------------------------------------------- 6

8. Marketing Strategies ------------------------------------------------------------------------------- 6

9. Conclusion And Findings --------------------------------------------------------------------------- 6

10. Appendices -------------------------------------------------------------------------------------------- 7

11. About Zopa Team ----------------------------------------------------------------------------------- 11

12. References -------------------------------------------------------------------------------------------- 12



Zopa - Zone of Possible Agreement

(www.Zopa.com)

1. Introduction

Zopa.com is an online brokerage or money exchange service launched in year 2005, allowing

people to lend and borrow money. The name Zopa stands for “Zone-Of-Possible-Agreement”

which identifies the bounds within with agreement can be made between the two parties. It is

basically a P2P i.e. Peer-To-Peer lending company, where Zopa acts as a middle man in

facilitating the loans or money transactions process between two or more parties. It’s a British

Company, based in London and is backed by Benchmark Capital and Wellington Partners. It

operates within the United Kingdom, Italy, United States and Japan. Zopa has developed a value

innovation in the financial services industry.

2. Business Model

Zopa.com is a new e-business model based which is based on C2C (Consumer-To-Consumer)

business model where borrowers borrow money from lenders at interest rate decided by the

lenders who receive the interest. It allows people who want to lend their money to be matched

with those who want to borrow. Zopa charges a nominal fee out of the borrower’s loan amount

and lenders amount. It acts as a middle-man between the two parties. It targets customers who

are sick of banks. Zopa uses the credit reference agencies Callcredit and Equifax to check

borrowers’ credentials, to prevent people with bad credit history and to avoid problems between

lenders and bad debtors. The Business model is shown in Exhibit 2(Appendices – [a].I).

One downside to Zopa’s business model is that it does not have a contact Centre.

The Zopa operating model:

People join Zopa online either as borrower or lender. They have to register with the Zopa, once

registered; lenders could lend money to a pool of the lenders grouped together because of similar

credits and desired term for loan. Zopa assesses the credibility of the borrowers through credit-

reference agencies based ratings. The method of assessing is similar to those of U.K. retail banks

and other lenders. Services is offered to only those who has attained a credit rating of A*-, A-, B-

or C-. The company also checks and verifies for identities of all lenders and borrowers by the

help of the identity checking agency. Again, the ability of each borrower to repay is checked

individually by the company’s own team of underwriters. Then the borrowers are provided



access to the Zopa’s own market which includes four lending categories A*, A, B, and C by loan

term (12 to 60 months).

3. Customer Value Proposition

The most important face that made Zopa a really appealing proposition is the attractive and low

interest rates and the lending method. Over the previous year, its lenders have enjoyed an

average annual return of 9.1%, while many borrowers were able to obtain loans at lower &

sensible rates. It has reported a 140 per cent increase in lending year on year. The main benefit

for borrowers is that they can borrow money relatively at cheaper rates over short periods for

small amount. Thus for the lenders of Zopa, higher returns were possible than that of the

traditional savings bank accounts. Also while waiting for their money to be lent out, the lenders

earned interest rates on their balance amount.



4. Revenue Model

How Zopa works?

1. Zopa verifies the credit of people looking to borrow and divides them into different

categories like A*, A, B or C. It looks at the credit of the people wanting to borrow

money and rate them as A*, A, B or C borrower. If they are not eligible for this or do not

fulfill Zopa’s criteria then they are not lent money.

2. Lenders are the people who are willing to make lending offers to the borrowers for a

period of time at interest rates decided by them.

3. Borrowers review the interest rates offered to them by the lenders and accept those they

are interested in. Borrowers can refuse the rates and can again come back to check for the

rates if they have changed.

4. Zopa reduces risk through lending only chunks of money to the individual borrowers as

shown in Exhibit 1(Appendices – [a].I). If a lender is lending large sum of money, then

his money is divided or spread among multiple borrowers i.e. if a lender is willing to lend

amount greater than £500 then the amount would be spread across at least 50 borrowers.

5. There is a legal binding contract between the borrowers and the lenders during the

process.

6. The Borrowers return or repay the amount monthly by direct debit. In case of defaults in

a repayment, recovery is done with the help of a collections agency that uses the similar

recovery process that is used by the high street banks.

7. Zopa charges fees to both Lenders and Borrowers. The borrower is charged a fixed fee

of £124.50 for each loan (whether from Markets or Listings) by Zopa. Before 6 April

2010, this fee was £118.50 and before 5 April 2008 the fee was a variable 0.5% of the

loan amount. Currently new lenders have to pay an annual fee of 1% of the amount lent

and this fee amount is deducted from the Lender’s account. For lenders who joined

before August 2008, the Lender fee was little less at rate of 0.5%.

8. Zopa also pays the Lenders interest on the balance amount in their holding accounts. The

holding account interest rate has been equal to the base rate of the “Bank of England” i.e.

equal to 0.75% and the interest is paid each month.

9. Zopa currently offers Category A borrowers a sum of £1000 at the interest rate of 5.5 per

cent, £3,000 at 5.9 per cent, £5,000 at the interest rate of 6.2 per cent.

10. Zopa provides loan amount from £2,000 to £15,000.

11. Lender can lend from £10 to upwards (maximum) of £25,000.

12. Zopa anticipates that a return of 6 per cent to 9per cent is returned to the lenders. The

Lenders can receive their monthly payments either as income or choose to have the

income rolled up and lent to other borrowers.

13. Zopa also earns money through selling payment protection insurance to the borrowers

who want it and through referring people who could not borrow at Zopa (due to bad

credit rating) to other loan providers.



14. If a borrower repays the borrowed amount more quickly than the original contract period,

then the borrower pays no additional fee on the portion of the total loan amount that has

been repaid early.

15. If a borrower defaults, recovery is done by collection agency but the lender is not charged

the service fee for the defaulted amount.

If the agency is unable to collect the outstanding amount after 120 days, the lender has to

make an agreement to sell the debt to the collections agencies for a price that has been

mentioned in the agreement, but it could not be less than 10% of the total outstanding

loan amount. The agency has to pay a fixed percentage of the outstanding amount to

Zopa which the company has to pass back to the lender. The borrower is barred from

further borrowing and his membership is suspended.

5. The Target market Place

Zopa has done an excellent job by accurately identifying its target market place. The company’s

target marketplace can be identified as the “free-formers”, who typically are “not-in-standard

employment, rather-they-are-self-employed or complete-work-that-is-project-based-freelance”.

The company also has a good customer insight which enabled them to structure the business and

services of the business accordingly. Also Zopa had a good demand analysis which showed the

trends & current levels at which their products can be used. Zopa estimated that there are nearly

six million “freeformers” in the United Kingdom and thirty to forty million in United States.

Also the research by the company showed that this number is increasing.

But the company does not focus in the area of conversion marketing. The company had nearly

26,000 customers after four months. If the numbers of potential customers are correct, that is

nearly one-third of a percent of their current target market. Since these numbers are only focused

on the United Kingdom and the United States, the market can be supposed to be quite much

larger for the company as the company is also focusing on Italy and japan.

6. Main Market Competitors

It doesn’t seem that Zopa has too many other competitors as such. But it is a market Innovator

itself. The closest competitors of Zopa at the moment are banks and similar web sites like Loanio

(www.loanio.com), IOU Central (www.ioucentral.ca) and Prosper (www.prosper.com).

However, there is no direct competition between Zopa and Banks because Zopa’s target market

is the customers that are rejected by the banks and people who do not want to go into the



Physical Banks due to the inconvenience face by them. It’s basically a Convenience/Service

charge.

7. Comparative Advantages

There are many advantages of Zopa over its competitors.

It has a solid management team that seems to work together well and has proved to work

well together in the past.

The revenue earning layout or plan of the company is also effective.

8. Marketing Strategies

Zopa has a unique/different marketing strategy than the most of other online companies.

Zopa has putt effort on the “word-of-mouth and PR with some online marketing

activities”, while it has put no much effort toward “offline media”, such as magazines,

billboards and TV’s.

Another important strategy is that Zopa uses Search-Engine-Marketing as its main online

marketing activity. This is one of the important steps by Zopa, but it needs certain

improvements.

However, there are some weaknesses to this strategy as well. Zopa has only small room for its

growth as the market is small and limited, it must focus on name recognition as it has just passed

through the introductory stage.

The company should do better research on demographic characteristics and

developing its customer personas. It should also focus on offline advertisement media’s as they

could help them in immediate future.

9. Conclusion and Findings

- Zopa has accurately identified its target market, and done some excellent research in

focusing on their target market trend.

- Zopa can create a broader range of personas as well as it can expand its areas of

advertising campaigns.

- It uses idea of conversion marketing to convert freeformers from just wondering at their

site to actually invest in it.



10. Appendices

a. Charts and Diagrams

i. Exhibit 1

ii. Exhibit 2



b. Screenshots



11. About Zopa team

Zopa is run by a small team drawing experience from a range of industries including financial

Services.

Board of Directors

Chairman

- Philip j. Riese

Non-executive Directors

- Rob Stavis (from Bessemer Venture Partners)

- Rowan Gormley

- Doug Dolton

Executive Director

- Giles Andrews (CEO)

Partners Companies

- Bessemer Venture Partners

- Balderton Capital

- Wellington Partners

- Tim Draper

- The Rowland family



12. References

1. Chaffey, Dave, Ellis-Chadwick, Fiona, Johnston, Kevin, & Mayer,

Richard (2006). Internet Marketing. Harlow: Prentice Hall.

2. www.wikipedia.org

3. http://www.telegraph.co.uk

4. www.zopa.com

zopa

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