'Four in five peer-to-peer borrowers rejected'
Most businesses or individuals attempting to raise money via peer-to-peer (P2P) networks are rejected, it has been claimed.
Giles Andrews, co-founder and executive chairman of P2P lender Zopa, claims his firm rejects 80% of borrowers as it aims to minimise debt defaults that could hit lender returns.
"You're basically looking for stability and propensity to repay," Mr Andrews said.
In an exclusive interview with Press Association, he explains why P2P has nothing to fear from "bloated" banks, how its name confuses some customers and why over-55s are key to the industry's growth.
- What is the biggest threat facing the industry?
I would say it is forgetting we are in the credit business. To state the obvious, it is quite easy to lend money, but not necessarily that easy to get it back.
So you have to make sure you lend to the right people. As the industry grows, the temptation is for new entrants to have a go, but they might not have the right skills.
The industry must remember primary focus is on effective lending. The leading platforms broadly do.
- Do you not worry the banks will target your industry?
We have a completely different structure. Our model gives us an inherent cost advantage.
We are also competing with a bloated incumbent.
It would be hard for them to compete - not impossible, but I am not worried.
Of course some of the challenger banks are actually keen to partner with us as they see how effective our model is.
We have teamed up with Metro Bank (the bank will lend money through Zopa's platform), and I think we will see more of this type of deal.
Some banks will choose to do that, and of course others will choose to compete.
- Who are you hoping to attract in terms of investors?
Over-55s make up 58% of the funds we have lent to date, and that percentage is growing. Obviously the new pension changes are helping fuel that.
But we are increasingly bringing in institutional lending, as mentioned before with Metro.
- What are the main challenges you face in terms of attracting new customers?
On the borrower side, it is simply the fact that many people might never have heard of you before.
On the lender side, it is ensuring people understand the risk.
We are not covered by the FSCS (Financial Services Compensation Scheme) guarantee scheme, and we cannot guarantee access to cash the moment you want it back. These factors can put people off.
We have a 100% track record, yet despite this we could offer some people a rate of 15% and they would not be interested.
Finally we have a slightly funny name, which does lead to some confusion. Some people think we are a payday lender!
- What trends lie ahead?
We feel P2P will offer a true value alternative to annuities. We can offer people a chance to keep their initial stake.
We would not suggest people invest their entire pension fund with us, but it is a nice addition/alternative, with lower fees than you see in the traditional pension industry.
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