Zopa, a U.K.-based peer-to-peer lending company, launched its U.S. website Tuesday, offering certificates of deposit (CDs) with a twist to help charitable U.S. investors earn money while giving back to others.
“Last year Americans donated $295 billion to charity,” Douglas Dolton, global CEO of Zopa, said. “And what we saw was a way for investors to be able to invest their money safely with a great rate of return, but still satisfy that need that we clearly have as Americans to share our money with other people.”
Zopa’s U.S. website will differ slightly from other U.S. peer-to-peer lending websites, such as Prosper and Lending Club, by offering CDs to partially fund the loans. (For more information, see our articles on Prosper peer-to-peer lending and Lending Club.) The CDs will assist Zopa’s loan borrowers in part, and investors’ money will be safely insured up to $100,000 by the National Credit Union Association, an organization similar to the FDIC.
The CDs will be handled by several U.S. credit unions, including First Tech Credit Union and USA Federal Credit Union, though Dolton said he expects to significantly expand the credit union network. Zopa only offers one-year terms for their CDs, and interest rates are capped at 5.1 percent.
“My experience in the financial services business is that you cannot continuously be the highest rate in the market,” Dolton said. “We intentionally did not set out to have the highest rate in the market. We intended to have a sustainable attractive rate.”
To invest in a Zopa CD, investors must choose a borrower then adjust the rate they earn on their CD, sending their chosen borrower all or part of the interest earned. Investors who choose to receive the maximum interest rate on their CD will help borrowers less, while those who choose a lower interest rate will help borrowers more. Once the interest rate is calculated, it becomes a simple reduction in the net monthly loan payment that a borrower needs to pay.
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“If a community church has an underprivileged student who’s going to school and all those members of the church opens up a $500 CD and take 3 percent…you can actually reduce the payments to $0,” Dolton said.
“From an investor perspective, it’s absolutely amazing to be able to get an insured guaranteed rate of return and still be able to help somebody,” Dolton said. “We call it the loan that can make payments for you.”
If a borrower defaults on a loan, it does not affect the return from the CD, Dolton said. “The loans are made by the credit unions, so that individual credit union would bear that loss,” he said. “We have underwritten them in a very safe and consistent manner across the board, so we are expecting to see fairly even performance across all of the credit unions.”
Borrowers are required to have a minimum FICO credit score of 640, and neither borrowers nor lenders pay any fees, though borrowers who are slow to send in payments may be subject to late fees.
Investors have to register at one of the six credit unions that partner with Zopa to invest in the CDs. This offers higher visibility and expanded membership for the credit unions, according to The Wall Street Journal.
Zopa also recently launched a site in Italy. Its original U.K. site, launched in March 2005, now has 180,000 registered members.
A password-protected test version of the U.S. website was opened earlier this month to a select group to allow a pilot run of the lending program.
“As the world’s first peer-to-peer, and now the world’s first global peer-to-peer lending operation, we think it really is about the connection between people,” Dolton said. “That’s what our values are all about: people, community, innovation and integrity.”
Interested investors can visit Zopa’s website to learn more.