Zopa, one of the UK’s leading P2P lenders, has partnered with Saffron Building Society in order to widen its distribution network and rectify the imbalance between the numbers of borrowers and investors on its books.
Customers of Saffron are now able to obtain a quote for a Zopa loan via a link on the building society’s website, making it the latest partner for the P2P lender. Zopa already has several partners, including Metro Bank, Airbnb, and Unshackled (a mobile phone seller), and these alliances are becoming a vital tool for it to find new borrowers to match against its investors. However, success is not guaranteed. Zopa partnered with Uber in 2015 to help its drivers fund purchases of new cars, but ended the arrangement after just a few months due to it exhibiting limited potential.
The current surplus of investors over borrowers means that Zopa is having to ration access for investors: since March 2017, prospective lenders have been held on a waiting list, and they will only start to be admitted towards the end of 2017.
Another factor which may increase demand for loans from Zopa is a tightening in the availability of unsecured credit from banks. The Bank of England’s Credit Conditions Survey has found that, since the start of 2017, a growing majority of lenders have reported a reduction in the availability of credit, with a further marked contraction expected over the coming months. Should this trend continue, Zopa can expect to field a growing volume of enquiries from potential borrowers who have fallen foul of more stringent credit scoring.
However, these borrowers are likely to have an above-average risk profile, which Zopa would do well to monitor closely. Zopa has already had to revise its expected default rates on recent loans upwards: projected defaults on loans originated in 2015 have increased from 2.88% to 3.47%, whole those applying to loans from 2017 have risen from 5.04% to 5.30%. This could be an early warning sign of trouble ahead: P2P lenders have not been tested in a downturn, and a weakening outlook for the economy, coupled with higher inflation and falling real wages, could put many borrowers under pressure.
Nevertheless, Zopa’s plans to diversify into full-service banking – it has raised £32m in a bid to win a full banking license – means that, even if defaults do rise, it should have sufficient capital to ride out the storm.
By Daoud Fakhri, Prinicipal Retail Banking Analyst