Zopa is about to turn a profit in the U.K., but last week exited its business in the U.S. where market conditions make it almost impossible for social lending to be profitable, Douglas Dalton, CEO of Zopa, the world's first social lending site, told the BS&T annual summit in Scottsdale yesterday (Mon. Oct. 20).
A combination of declining credit quality among U.S. applicants and a regulatory structure here that makes it financially prohibitive to better vet applicants led to Zopa's decision, Dalton said. "In January, we were approving 10 percent of applications we were receiving. In September, it was about 1 percent," he said.
If Zopa did more than simply connect individuals via its web site and actually vetted them as credit risks it would have had to become registered with the Securities and Exchange Commission (SEC). Underwriting an applicant for credit would mean being viewed by the SEC as having a participation interest in a security, involving much paperwork plus pre-screening by Zopa of its would-be individual lenders.
Dalton claimed that only one of the person-to-person lending web sites—forums that, as Dalton put it, involve "getting people who want money closer to people who have money"—is profitable. That site, Loanback.com of San Francisco focuses on the small market where individuals lend to people they already know, Dalton said.
Zopa's U.S. operation has lent $70 million in person-to-person loans. In the U.K., where Zopa's business started slow in March 2005, Dalton said, "We have loaned 27 million pounds as of yesterday." In Italy, where Zopa has been since January, it has lent 4.2 million euro.
Despite the challenges, Dalton said, "I think banks will do a lot more in the social lending space."