The Captain's Blog ™

Zopa is an innovative “social lending” website that allows people like you and me to lend money to, or borrow money from, other people in the UK, with Zopa facilitating all the matchmaking and admin.

The principle behind their business model goes like this: when people put money into a bank or building society deposit or savings account, those institutions pay you interest on your balance.

With your cash now sitting on one half of their books, they lend money to other customers (personal loans, mortgages, overdrafts, etc). In doing so, the banks charge those borrowers higher rates of interest than they’re paying you – creating a margin for them, which can lead to nice big profits.

Zopa is based on the idea that, by cutting out the banks and building societies, people can lend to (deposit) and borrow from each other more directly and at better interest rates for both parties.

Zopa sits in the middle to facilitate the process, creating and running the online marketplace / money exchange, running identity and credit checks on people who apply for loans, collecting payments, chasing bad debts, moving the money around, producing statements, etc.

If you’re lending money, you choose who you’re willing to lend to (defined by credit risk and duration of loan), the rates you’re prepared to lend at and the maximum amount you’re willing to lend to any one individual (so you can spread your risk). If you’re borrowing, you choose whose lending offers to accept. Zopa then manages all the related admin.

Zopa takes a fee from each party for its role and lenders may also experience a certain level of bad debt. But the overall idea is that both parties can potentially get better rates than by dealing with banks.  Zopa also has some nice community touches, so everyone gets to feel all warm and fuzzy, too (for example, lenders can see what their borrowers are using the money for).

This all sounds great – and it seems to have taken off very well: Zopa has won a host of awards and plaudits and seems to be going from strength to strength.

But I think they’re missing a really important point that, if addressed properly, could see them doing a LOT better.

When I read their marketing materials (I got another little booklet in the post yesterday) and website (including sections accessible to members and non-members), the pitch to existing and potential lenders focuses a lot of attention on how to put money in. Yet there’s virtually nothing about how you can get it back out!

Call me simple, but if I was considering putting money into a bank account, it would be of fundamental importance that I can see up front how I can later get that money back out.  If I can’t see that, or if it looks like it’s going to involve hassle, then I’d look for a different account.

As Zopa is essentially offering an alternative to traditional options, the same applies. Very high up on my list of questions would be, “how can I get my money out?”

I’ve been a member for a while and I thought they’d get around to addressing this omission, given a little time. But it seems that, perhaps understandably from their perspective as an ambitious start-up, they still have a case of tunnel vision, in that their focus remains firmly on getting new money in.

Despite the passage of a lot of time, it’s still incredibly difficult to find out how you can withdraw from your account money that either hasn’t yet been lent or has been repaid by your borrowers.

If you dig long and hard enough you’ll find one reference to it. It’s lurking in the “Already a lender?” section of their FAQs, which itself is part of a help section, the link for which is also oddly inconspicuous.

Question 10 (yes, ten) of said FAQs asks “How can I transfer money out?” and advises that you can click the “Transfer Out” link on their site. I’ve looked and this link either doesn’t exist or must be hidden somewhere incredibly cunning. Or you can email them, which is hardly ideal.

For me – and, I suspect, for many others - this just isn’t good enough. If you can create a facility for people to pay money in online (and they have, offering various options), then there should also be a facility to request a withdrawal the same way. At the very least, how you can withdraw money should be made as clear from the outset as how you can pay money in.

I suspect very strongly that this oversight is acting as much more significant barrier for potential new lenders than Zopa might realise and that resolving this issue may prove to be worth more than its weight in gold.

In the meantime, if you fancy becoming a borrower or lender at Zopa, you can benefit from a £30 bonus if you use our link and go on to either lend £500+ or become a borrower at Zopa before the end of December.

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FORUM: You can also talk about Zopa on our forum. To post you’ll need to register.  There’ll be a short wait before your account is activated (a day or so at most). Then you’ll be up and running!