Zopa, the P2P Lending company from the UK has now opened its virtual doors in the United States. Zopa has been providing a P2P marketplace in Italy and the UK for some time now. The rates that they are offering to borrowers (currently starting at 8.75%) for unsecured loans are quite low and can go as low as nothing with help. The rates provided to lenders, although greater than a government CD, are not outstanding, but Zopa’s differentiating factor from other P2P lending sites is that Zopa loans are guaranteed.

To summarize and simplify Zopa’s somewhat complex model, let me walk you through the steps as a lender — How Zopa Works:

1. Register and open an account with one of the member credit unions.
2. Lend money to the credit union at a flat and guaranteed rate which is higher than a CD, but is also backed by the FDIC up to $100,000.
3. You pick a small portion of your return (called help) and give to a particular borrower(s) to lower the borrower’s monthly payments.

So again it is a guaranteed flat rate of return which is greater than a 1 year CD, unless you choose to lower the return to give the difference away. The return is less than you might earn with Prosper or Lending Club, but you do not take on the credit risk, so your principle is not at risk. You are lending money to the bank and not directly to the individual in this case. So to inject the P2P aspect of the lending, Zopa allows you to give away a bit of the differential between the rate at which they loan out the money and interest that they are paying you. So if you loan Zopa, er, rather the credit union via Zopa, lots of money, you can discount the rate at which your uncle, bother, or sister (or the girl who has a cute picture — and I expect to see lots of attractive pictures posted at Zopa) borrows money by you giving the borrower a bit of the return to lower their payment. According to the marketing material, everyone wins. Well, as long as the lender is happy tying up their money for a full year at rates just slightly higher than a government bond – or less than government bond if the lender prefers to give more juice to borrowers. And of course Zopa wins who takes no risk on the transaction since Zopa is actually a middle man between the credit unions and the individuals.

The True Irony of Zopa

Did you catch that last bit? My review of Zopa is that it is ironic that a web 2.0 P2P lending site is actually serving as middle man between borrower and bank and lender and bank. Zopa has injected themselves into the middle of a transaction that you could have more directly entered. Very ironic, but at least they do seem to offer good rates and an interesting concept.

Update: Zopa Borrowers Receiving Negative Interest Rates on Loans

More than ironic… What is the point of using Zopa lending to a relative? If your purpose is to gift a relative some money by lowering their rate by lending your money at less than the going rate, might I suggest you simply gift the relative some money instead and cut out the middle man?

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