UK peer-to-peer lending platform Zopa is working with US credit unions as it looks to take on rival firms such as Prosper in the North American market.
Zopa was established in the UK in February 2005 by several members of the original management team behind the launch of Internet bank Egg. The online service enables people to borrow money from other individuals, rather than financial institutions.
Following a successful launch in the UK, Zopa raised $15 million to support a US-based start-up and take on American imitator Prosper which launched a social network in February 2006.
Prosper operates an eBay-style marketplace in which people list and bid on loans over an online auction platform. However, Zopa is taking a different approach by teaming with six credit unions, such as Forum Credit Union of Fishers, to offer person-to-person loans to prospective borrowers.
Under this model, the credit unions will enable lenders to park money in Zopa-branded certificate of deposits (CDs) that are then used to help fund the loans to borrowers.
Lenders buy one year Zopa CDs at a rate of 5.1%, to help fund the loans and if they want to assist a particular borrower can choose to take a lower interest rate and pass this saving on.
In contrast to Prosper, the deposits of Zopa's lenders are insured for as much as $100,000 per credit-union member, so they should get their principal back if the borrower defaults. Zopa will make money by sharing in the interest-rate spread that the credit unions earn between the loans and deposits.
Zopa CEO, Douglas Dolton, told Wall Street Journal reporters that using existing financial institutions is the most efficient regulatory model.
Doug True, SVP of Forum Credit Union of Fishers, says Zopa's merging of financial services and social networking "is a great way to reach the younger generation".
Details of Zopa's US service follow news earlier this week that Prosper passed the $100 million mark for loans funded and now has over 490,000 members.
The US market for P2P lending is set to become increasingly crowded, with a glut of start-ups such as LendingClub, Loanio, LoanBack, GlobeFunder and Virgin Money all testing the waters.