IF1204 Banking and Financial Institutions
The Power of Peer-to-Peer Lending
Synopsis of the Case Study
Zopa, a UK-based peer-to-peer lending company, connected individual lenders and borrowers via an on-line interface. The company charged a small fee for completed loan transactions but has not turned a profit. Zopa offered two platforms, Markets and Listings. Markets was an automated system that assembled loans by combining lowest loan offers from different Zopa lenders. Zopa Listings allowed prospective borrowers to post eBay-like listings explaining who they were, how much money they needed, and how they would use it. Lenders then made offers specifying how much they were willing to lend and at what rate. Neither platform met with much success. In February 2009, the CEO of Zopa is considering withdrawing from Listings, and focusing on Markets, even though in a company in the US, Prosper, had attracted many users with a product akin to Zopa Listings.
Aims and Objectives
- Examine the core banking activities
- Understand the screening and monitoring in the lending business
- Become familiar with new players in the lending business
To demonstrate an understanding of role of banks and new players in the banking system, students should aim to structure their report (max 3,000 words) in a way that addresses the following issues:
- Briefly outline the history of Zopa, with a focus on more recent
- Why did Zopa’s managers see an opportunity in peer-to-peer lending?
- Briefly discuss the business model of peer-to-peer lending in terms of client segmentation and screening and monitoring of
- Why and how has Zopa benefited from the financial crisis in 2008?
- How has the increase in the acceptance rate affected Zopa profitability?
- What are the main benefits to borrowers involved in peer-to-peer lending?
- What are the main risks to lenders involved in peer-to-peer lending?
8.. Identify Zopa’s major competitors and illustrate their business models and strategic choices in recent years (up to three main competitors).
- With respect to the evolution of the banking system, what do you suggest Zopa should do next?
- Discuss how banks should respond to peer-to-peer lending
Students should address the above issues in detail. All questions have equal weight (10 marks).