Zopa CEO on lender freeze: Popular restaurants don't 'put on more tables, they take reservations'

Zopa "growing [lending] by 45-50%" despite a freeze on new lenders.
Peer-to-peer lender says it has been tightening credit amid a squeeze on disposable income.
CEO says credit conditions normalising after 8 years of improvement, thinks the economy is OK.

LONDON — The CEO of peer-to-peer lending business Zopa has rejected claims the business is struggling to attract borrowers, saying the platform is still growing lending volumes by as much as 50%.

Zopa stopped accepting new money in December 2016, amid high demand to lend over its platform. The Financial Times wrote in September that Zopa's experience highlights the "enormous difficulty faced by marketplace lenders attempting to find new borrowers."

CEO Jaidev Janardana told Business Insider: "I do struggle a little bit with this thing that we're struggling with borrowers. We have been growing [lending] by 45-50%. I don't think there are other businesses that are growing at 50% year-on-year that would be looked at as struggling."

Speaking to Business Insider at LendIt Europe this week, Janardana said existing investors have funded the platform's growth by deploying more capital on the platform.

"What we have had is an issue of too much popularity on the other side," he said. "Investors, particularly given ISAs, have just wanted more of our product. We see that as an incredibly good thing actually."

Zopa, founded in 2005, is credited with inventing the idea of peer-to-peer lending: matching borrowers with investors willing to fund their loans online. The company only does consumer lending in the UK and has lent over £2 billion to date.

Zopa has built up a waiting list of 15,000 people who want to lend over the platform. The company hopes to let some of them onto the platform towards the end of the year.

Janardana said: "One of the things we could have done is just reduce prices and that would have settled the market and we would have made a lot more money. We have chosen not to do that because we think we have a duty of care to maintain an appropriate risk-return.

"We could have chosen to continue to relax credit — again, we don't think the right thing is to reduce the quality of the product. A restaurant that has high demand doesn't start putting on more tables, they take reservations — that's what we're doing."

'Consumer lending is always a cyclical business'

Britain's Bank of England Governor, Mark Carney, addresses journalists during a press conference to deliver the quarterly inflation report in London, August 3, 2017. The Bank of England has been sounding the alarm on rising consumer credit levels and warned lenders in July not to "return to the punch bowl," saying it is worried that lenders relaxing their lending criteria could lead to repeats of mistakes made during the financial crisis.

Janardana said Zopa began tightening its lending criteria around 15 months ago, amid signs of deterioration in the market.

"We realise that consumer lending is always a cyclical business and it's important to be agile. We've been tightening credit for almost 15 months, we started at the announcement of Brexit. We've been slowly tightening credit. I feel we're in a good place."

Zopa recently wrote to investors warning them to expect lower returns in part due to deteriorating credit conditions in the UK.

"If you look at pretty much any public data — insolvencies in the UK in general, they've been ticking up for the last 18 months," Janardana said. "The Bank of England does a quarterly survey of its lenders, which are banks. In the credit conditions survey, they reported that in general unsecured consumer lending there was a tick up [in loss rates] in Q2 and even more so in Q3."

I think what is happening is an economy-wide trend of credit going back to normal levels

Asked if he thought this was linked to Brexit, Janardana said: "I'm not wise enough to know what Brexit will bring, but what we do know is it is creating uncertainty. Uncertainty drives down business confidence, it drives down growth, and you can start seeing that with the UK being the slowest growing market in the G7.

"The other thing that has happened, whether it is Brexit or not I don't know, is higher inflation. What that does is squeeze people's disposable income. We've always had [borrowing] criteria for people's disposable income but people who are near to that criteria have actually struggled more than in the past and we think that is a result of inflation."

"I think what is happening is an economy-wide trend of credit, which has been improving for a long time, going back to normal levels, potentially caused by inflation, that might be one of the reasons."

Janardana, who worked at Capital One before Zopa, said he does not think the UK is heading for a credit crunch or recession.

"Fundamentally, as of today, the economy is still going, the unemployment rate is still low," he said. "Those are the things we're going to keep a very close eye on. If those things start to change, then we need to act quickly. At least we understand the levers to pull when those things happen."

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