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Profile: Giles Andrews, CFO of ZOPA

With public perception of high street banks at an all time low, Giles Andrews, CFO of ZOPA, tells our reporter about his company's revolutionary approach that's fit for the iPod generation
Giles Andrews is not an accountant, he insists as we arrange our interview. But in some ways, you wouldn’t expect him to be. As the CFO of social lending exchange ZOPA, a start-up challenger to the banking industry, you’d expect him to be a former management consultant, or something along those lines. However, he’s not quite a management consultant either. Andrews met one other key member of the ZOPA management team doing an MBA at INSEAD (so he almost is). He spent ten years working in the motor industry, helping create a chain of car dealerships turning over £250m among other things.

Andrews and his colleagues are now at the forefront of what they hope will be a consumer revolution in financial services. Their business aims to cut out the middle man of banking, allowing individuals to borrow and lend between each other, without dealing with the poor returns and high charges of the high street banking sector. They hope, no less, to profit from the disenfranchisement of the masses from the corporate world.

‘It’s an interesting consumer trend – borne out in some ways by the people who work for us. They’re disenfranchised by many of the institutions of society. They don’t trust the model our parents trusted. They’re less keen on the corporate model of working, earning a salary, spending it and retiring, then getting a pension and spending it.’

They are, he says, a more self-reliant generation. ‘It’s part of the rise in people taking control of their financial situation and not relying on others. When they book holidays, they don’t buy packages. They don’t buy albums, but individual songs from iTunes. They’re more choice-conscious. The offerings banks provide don’t have much relevance to those consumers.’

He paints an attractive, rebellious picture that almost makes you want to rush out and get a ZOPA loan – join in the revolution. Then, he says, ‘you can earn interest from people rather than from a faceless institution, knowing you are contributing to city people’s bonuses’.

That, certainly, will strike a nerve with many. The banking industry in the UK is at a key juncture, under attack for its penalty charges on overdrafts, the remuneration of top bankers (more often working in the investment banking side, it ought to be noted), and a feeling that the system works for fat cats rather than for its customers.

Spot the difference

ZOPA’s premise is different. It introduces lenders and borrowers. Its title is an acronym for ‘zone of possible agreement,’ the place where lenders and borrowers meet. Using web technology developed over the dot.com boom and now a viable business model, lenders put up £20,000, for instance, on its website, the money is diversified over hundreds of different loans and parcelled out to borrowers.

No deposit appears on ZOPA’s balance sheet and it defiantly rejects being labelled as a bank, calling it one would be a terrible faux pas.

So how do its rates compare? Pretty favourably, as it happens. Money supermarket.com, which compares the prices of financial products, has ZOPA’s £5,000 loan over three years as its best buy. Change the variables and you might get a different answer, but to top any table in a market as competitive as the UK’s is not bad going for a business that only recently celebrated its second birthday.

The youthfulness of the business is something that is hard to get away from.

Five minutes into our discussion, soft drinks brand Innocent drinks turns up in conversation. The smoothie maker has a lot in common with ZOPA. Both recent start-ups and challengers to big business in the UK, they have similar counter-cultural resonances. They are businesses, ultimately, with a socially aware outlook.

Was Innocent drinks a model? An inspiration? ‘I don’t think they were a model but they are a really good business. They’ve achieved an enormous amount.’

Andrews accepts there are parallels but doesn’t really want to be drawn any further.

As a ‘cosy, friendly start-up’ there’s one thing ZOPA does have to do that is neither cosy nor friendly: chasing up bad debts. ‘We pursue debts as aggressively as any lender. To our borrowers we make a lot of the fact that their lenders are real people.’

ZOPA passes on bad debt details to credit agencies, meaning borrowers are as badly affected by defaulting as they would be in conventional banking: ‘We pursue things if necessary through the courts. We wouldn’t want anyone to think we are a soft touch.’

ZOPA runs a low level of bad debt at just 0.05%. Partly, it seems that this is something to do with the fact they are pitching to a socially aware and possibly better-off demographic, but it’s also because they’ve been careful.

When the business launched, it was targeted by a large group of borrowers who thought it was easy money, and either couldn’t or wouldn’t have repaid. ‘We turned down a very high proportion of the borrowers in the early days,’ Andrews says.

And even when it is being nasty, there is a crucial difference between it and the banks. ‘We don’t optimise our revenues through [our bad debt collection]. That’s what the banks have a bad reputation for.’

The business is about to break even in the UK, with over 130,000 members, and is on the point of launching in the US, in Italy under franchise, and is in talks around the world to launch other exchanges.

It is in the midst of celebrating its two year anniversary (which falls this month). The member community, Andrews says, will be involved with the celebrations too.

The business opportunity is that ZOPA is a very low fixed costs business. ‘It breaks even at tiny volumes compared to the market opportunity. And it becomes very profitable at scale,’ says Andrews.

Billion pound market

The market is huge, worth many billions of pounds. ZOPA is currently only targeting a small part of the general banking sector in its pursuit of unsecured borrowing. It doesn’t offer mortgages, and won’t solve your dissatisfaction with your high street bank account.

But it has, as Andrews is keen to point out, introduced a new asset class. Whereas previously, only institutional investors could really buy consumer debt through securitisations, now retail investors can buy into it.

ZOPA hopes that IFAs will eventually recommend that investors, in diversifying their investments, will choose to have ‘a bit of ZOPA’ in their portfolio. But it’s not an easy sell, since IFAs tend to sell on commission (another reason to dislike the UK financial services industry). ZOPA does not have the margins at the moment to manage that.

‘An issue in the IFA world is that we are a low margin business but we are working hard on this as an introductory channel, and they have never had anything like ZOPA to offer before,’ he says.

The challenge at ZOPA will be, Andrews says, to ‘maintain the difference whilst retaining the trust.’ That seems exactly right. It would be easy to see, with venture capitalists eager for an exit, the business sold to a high street player. A disillusioning prospect like the sale of Green & Black’s to Cadbury Schweppes.

But for now at least, the cynicism is on hold.

A serious business

ZOPA is in every sense a very serious business. It is backed by three venture capital firms, Bessemer Venture Partners, Wellington Partners and Benchmark Capital. The three have significant experience of internet ventures in particular, having backed Skype and eBay, to name just two.

Andrews, like his colleagues, is clearly experienced in business too. But whereas many of those who started ZOPA came from Egg, the pioneering internet bank, he worked in the car industry. ‘I went to Oxford, and then spent ten years in the motoring industry, having a passion for motor cars. Halfway through that I set up a business [Caverdale Group] with a group of other people buying up car dealerships, which we sold in 1997.’

When he talks about his career he talks, as many do in start-ups, of the passion for the idea. ‘I’m fascinated and passionate about the business opportunity, and I like to do things I’m passionate about.’ That makes up for the sometimes long hours. ‘The perception is you are working for yourself, choosing to do it, and that makes it more fun. Most people involved in start-ups enjoy it.’

You can’t pin a career plan on him either. ‘I’ve never managed my career in that manner. I’ve always done things that have come along that looked interesting, and have no idea what I would do next. Find an interesting group of people doing something interesting, and probably work in a financial role.’Not the next finance director of HSBC, then? ‘I don’t think they’d have me,’ he says, laughing.