Among the new wave of social computing technologies comes the world’s first online peer-to-peer moneylending web site.
Electronic marketplace Zopa has pioneered a banking model which offers investment and loans to compete with traditional high-street banks.
The system allows individuals to go straight to the marketplace, cutting out the need for consumers to negotiate with banks and providing the opportunity for reduced interest rates.
By doing so, says chief executive James Alexander, Zopa has captured the mood of the nation at a time when more value is placed on individual decision-making amid a distrust of large institutions.
‘Individuals want to be more self-reliant in all areas of their life, including when making their financial decisions, and they have less trust in society to look after them,’ says Alexander.
He calls such people freeformers, and the basis of Zopa’s business case, a proposition well-honed by Alexander and his long-standing business partner Tim Parlett, who manages Zopa’s IT operations and credit risk management.
The two met at online bank Egg, where Parlett was a founder responsible for customer systems from 1999 to 2000 and Alexander was strategy director, joining slightly later in 2000.
Zopa’s open-plan central London office is as relaxed and modern as its founders, who sit among the team, paying no regard to job function or hierarchy.
The one thing all employees have in common is a surprisingly un-technical attitude towards the systems that underpin the business.
‘Without wanting to denigrate what we’ve achieved with technology, it is secondary to the primary issue of the disintermediation of banks,’ says Parlett.
The company’s site is written in .Net and as a bespoke development, using a set of technologies that has allowed the firm to analyse its visitors’ behaviour.
Identifying risk is a crucial part of the business, which can boast a 0.05 per cent bad debt rate.
‘We only know our customers electronically, and that means we need the technology to gather business intelligence to determine risk,’ says Parlett.
With all transactions and communication carried out electronically the only paper correspondence a Zopa user ever receives is a PIN number sent to their home for added security it is essential that the technology is 100 per cent reliable. A paperless process does, however, present a number of challenges.
Parlett and his team had to develop a method of online loan signature, for which Zopa now holds a patent.
‘We designed a piece of technology which allows borrowers to electronically sign 100 contracts in a matter of seconds and which will hold up in a court of law,’ he says.
Parlett wrote code to allow the user to click on each individual PDF document, or hold down a key, to sign multiple contracts one-by-one at an accelerating rate.
The method overcame the hurdle of the legal requirement for the user to sign each individual contract, of which there may be hundreds in one Zopa transaction, as the amount borrowed will often originate from multiple sources.
Developing and patenting the multiple signature technology proved a breakthrough for the company, which previously was only able to allow users to lend £25,000 or less.
The system opened up the area of business loans - and Parlett and Alexander then had to invest in technology that would allow them to more closely understand their customers.
The information Zopa has on its clients comes from three sources: users’ behaviour determined through site navigation; self-declared information; and, perhaps more importantly, credit bureau data.
The credit information, both numerical and behavioural, is then put through a series of complex analytics using a scorecard of about 200 variables. The risk assessment process shows how likely a person is to pay back a loan at a range of borrowing rates, depending on an individual’s credit worthiness.
Managing the data behind complex information systems requires a strong infrastructure and services set-up.
The firm’s primary database is located in a Redbus data centre in London’s Docklands. Bankserve, meanwhile, runs Zopa’s payments systems, as well as providing managed hosting services.
‘We’ve built our systems to be as robust and as secure as you would expect in a bank,’ says Parlett.
By eliminating high entry costs for big data analysis, you can convert more raw data into valuable business insight.
A discussion of the "risk perception gap", its implications and how it can be closed