Upside of Down Times - the Story of Zopa
Back to Barter - Extrapolating from the popular news describing economic collapse and the financial tsunami, a casual reader might expect that society will soon be reduced to only the most primitive trade
activity. Amidst unemployment and blocked credit markets, corporations and banks will not function effectively, and what limited commerce takes place will be conducted between individuals, as
was the case in the millennia preceding Adam Smith. Sound dark and dismal?
Old Ideas and New Opportunities
Not to Giles Andrews. He is not a cave-man or even a Luddite. But as managing director and co-Founder of Zopa, he is stealing an old idea from our medieval trading ancestors to create a modern business which is flourishing as a result of the current credit crisis. The old idea is Person-to-Person (with hip new moniker: P2P) lending. Zopa, founded in 2005, provides a simple online market to connect individual lenders with individuals who need money. It works a lot like eBay, in that potential borrowers can post their capital needs, be rated on prior transactions, and hopefully be funded by one or many people in the Zopa community.
The Power of People
Initial results suggest that Zopa is delivering on the hope. The number of new borrowers in Q3 2008 was up more than 50% over Q2. And what makes Zopa work is that it's upside down; it's everything a bank is not. It's individual. Individual borrowers, like jamesrw (his Zopa username) who is looking for Œ£10,100.00 to pay off a loan and invest in his advertising consultancy business. It's interaction. In order to get the first Œ£2,000 of his loan, jamesrw had answered 22 questions and even gotten business advice from potential lenders on his message board. It's diversity. Jamesrw received money from a large number of people, like finkerxyz1 who lent Œ£20.00 at an annual rate of 12%. The lender, finkerxyz1, distributes tiny loans to many individual borrowers, and spreads lending risk across them all. And finally, it's a little insight. Andrews knows that most defaults happen on the bigger loans that banks typically target. So Zopa limits transactions to Œ£15,000 and Zopa lenders enjoy a default rate of 0.1% of total loans, far less than the banks.
The Business of the Solution
Along with economic collapse, people grumble that economic crisis is not a good time to start a venture. Yet venerables including Sony and Proctor & Gamble were launched in down financial markets. One of the approaches observed in expert entrepreneurs is the ability to invert a problem and imagine how even unpleasant surprises can provide the foundation for new opportunities. In the same way that Andrews is succeeding in the banking industry as the very result of bank failure, crises ranging from energy to malnutrition present opportunities to both make a positive impact and make some money. Which crisis are you going to turn upside down?
Stuart Read is professor of marketing, IMD, Lausanne, Switzerland. Robert Wiltbank is assistant professor of strategic management, Willamette University, Oregon.
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