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Zopa, the “peer-to-peer” lending platform, is getting ready to operate in Italy: in the past days Zopa was formally authorized by authorities and was enrolled in the financial broker register.

Zopa was born in 2005 in the UK, and basically offers a web area where who wants to lend money meets who want to borrow money: simply said, it’s a way to invest or borrow money without having to deal with a bank. Zopa (Zone Of Possible Agreement) is financed by the same investor that financed e-Bay and Skype.

Zopa idea is surely very interesting, and we will have to keep an eye on the evolution. But there are a few weakness that we have to point out (note: we are, by now, talking about UK version — we hope that Italian version, now under construction, will overcome these problems). In my opinion, the messages on security and on Zopa’s own role in the transaction can be misleading.

  • First of all, ZOPA is not part of the transaction: credits and debts involve only Zopa users, that have to carry all the risk in case of missed payments.
  • Zopa rates “aspiring borrowers”, putting them in four classes (A+, B, C, D) based on their reliabilit, but it’s not well explained how this rating is run. What one may think is this: rate borrowers isn’t easy (just think of Rating Agencies evaluation about subprime mortgages): does Zopa have the skills to run ratings?
  • Zopa splits investor’s money on several borrowers, to reduce risk. It’s not completely clear how this splitting happens. And, in some way, this means something like a debt securitization, but not regulated, nor easily marketable.
  • On the homepage of UK website, Zopa writes It’s Safe!“, that may mislead investors: surely splitting money between different borrowers lowers risk, but the number isn’t that high to be statistically relevant to assure complete safety. For a certain point of view, Zopa’s lending if can be considered as sub-sub-prime lending.
  • Zopa publicize high revenues for investors: but it compares itself to bank account and deposit account. This is not correct, since this are completely different investment, also from a risk point of view. Also, it is not well explained if, once you lent money, you can have it back before maturity (most likely not, since money is in borrowers’ hands).
  • Zopa highlites he “human side” of lending. This is an appealing topic, but in my opinion looks like a marketing stunt. Let’s be straight: I don’t think a drug dealer would tell on Zopa that he wants money to buy drugs. So he could borrow money from Zopa as easily as from a bank (or maybe even more easily).

In conclusion, Zopa’s is surely a good idea, but to play the bank is a difficult game, and if you don’t play well, somebody could get hurt: we can talk how badly we want about banks, but don’t forget that if they also follow regulation that (should) safeguard creditors and debtors, before the banks themselves. To eliminate intermediaries may be a good thing, but it’s needed to carry out all the functions they perform.

Original post (in Italian): Arriva Zopa, il prestito P2P: una fresca novità o…

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