Originally posted on AltFi.com.
Jaidev Janardana has taken over as CEO of the world’s oldest peer-to-peer lending platform Zopa. News broke towards the end of August that Jaidev would assume the position from long-time CEO Giles Andrews, whose title is now Executive Chairman. While Giles will continue to be very much involved, Jaidev is now responsible for conceiving of and implementing the company’s strategy. I caught up with the new Zopa boss on Monday to talk through his background, his work with the platform since arriving as COO in October 2014, and his vision for the future.
Jaidev was raised in India, and moved to the US in 2002 after having been hired out of business school by Capital One (COF) . He spent the next 12 odd years of his life carving out a distinguished career at Capital One, in a variety of roles, in the US and later in the UK. In 2008 he became Chief Credit Officer for Capital One’s UK business. Jaidev described the credit crunch as a uniquely valuable learning experience. Capital One performed fairly well throughout the recession – not unlike the Zopa platform. Midway through the downturn, Jaidev switched roles to focus more heavily on collections, recovery and fraud – which again he cites as a uniquely instructive experience in terms of understanding more vulnerable types of customer. Before joining Zopa, he was serving as Chief Marketing Officer for Capital One – a role which entailed oversight of the company’s marketing, product, credit and risk operations.
Jaidev's Values Parallel those of Zopa
On first meeting Giles, Jaidev described “an instant connection of values”. Their views on how best to treat customers, and on taking a prudent approach to credit, rang loudest of all. Jaidev admitted to being particularly excited about the historically measured approach that had been taken to growing the business.
Under Jaidev’s stewardship as COO, the platform has gone from strength to strength. Growth has accelerated across the board. Over the last 10 months, the platform has struck a slew of strategic partnerships, has been using increasing amounts of institutional funding, has seemingly developed a greater appetite for risk, and has made its loan book available for public perusal, among other significant developments. Many of these plans had been laid prior to Jaidev’s arrival, but he has served as the impetus for just as many more.
The new Zopa boss confirmed his role in bringing in an increased volume of institutional funding, which he described as a “key enabler” of the platform’s recent growth. Zopa has lent a UK industry leading £335m in 2015, including a record-breaking £52.2m in July. The reason for using more institutional money, as Jaidev put it, is that whilst the platform will always prioritize its retail customers, demand on this side of the business simply wasn’t keeping pace with borrower demand.
Perhaps the bigger change in Jaidev’s short tenure at Zopa is a restructuring of the way that the platform’s credit decisioning process functions. Zopa formerly ran a two-step process; the first involved determining the risk market of a prospective borrower. The second – which required a much more hands-on approach – was to use additional information to decide whether or not that borrower had been placed in the correct risk market. If yes, the application would be accepted, if no, it would be rejected.
The major inefficiency with this process, as Jaidev outlined, was that not all of the available information was being used in stage one, whilst setting the market of the borrower.
Benefits for Borrowers and Lenders Alike
Since Jaidev’s arrival, the process has changed. The platform now utilizes data from multiple bureaus. More importantly, however, affordability data is being leveraged upfront, and much more effectively. This has resulted in an uptick in conversions, from between 14-15%, to around 18-19%.
In terms of borrower experience, the great benefit is that turnaround times are much reduced, resulting in a better experience for borrowers. Those borrowers are also now given a more predictable outcome from the outset, with less likelihood of rejection at phase two, thanks to increased efficiency in phase one.
Jaidev also confirmed that returns for the platform’s investors have marginally improved as a result of the shift in infrastructure.
In Jaidev’s short reign as COO, we’ve also seen a number of important strategic partnerships materialize. On the origination front, Zopa has partnered with Flowgroup and Uber. The Flowgroup deal is a point of sale financing arrangement. The Uber tie-in allows drivers to access purchase loans for their vehicles via the Zopa platform – loans that are (for now) funded exclusively by P2PGI. For Jaidev, an alignment in ethos is integral to any working relationship. It’s no coincidence that both Uber and Flowgroup are innovative and disruptive forces within their own respective fields.
Many of the types of loans that are sold by Zopa have traditionally been flogged by point-of-sale vendors. Car loans, for instance – which account for around 30% of the platform’s lending, are often sold in person, by a car salesman. “I think it’s important that we are in that channel as well,” said the new Zopa boss, going on to explain that technology has a role to play in maximising the efficiency of such transactions.
We’ve already touched on the role of institutional funds in quickening the platform’s growth. There are currently three institutions buying loans through Zopa: P2PGI, Arrowgrass and Metro Bank. But what are the criteria that an institution must fulfill in order to partner with the Zopaplatform?
Jaidev pointed to a certain degree of “self-selection” – in that not all institutional investors will have an appetite for Zopa loans. Jaidev described the Zopa investment proposition as “low risk, low return” and highly reliable. That risk profile will suit some investors, and will not suit others. Equally, it’s important that the platform’s institutional investors share, or at least understand, the values of the company. Jaidev cited the fictitious example of an institutional lender demanding that the platform become more stringent in its collection policies, as demonstrative of the kind of situation that Zopa doesn’t want to see develop in the future. Ultimately, the platform’s institutional partners need to understand that the platform’s procedures are built to last, and should prove returns maximising in the long term. It’s also logical then that Zopa stresses the importance of long-term capital. “What we want is a reasonably consistent and predictable borrower experience,” said Jaidev. “We want partners who are willing to commit for a longer-term.”
Perhaps not, says Jaidev, mainly because personal lending is an activity in which the major UK banks actively engage. It’s therefore much harder for an RBS or a Lloyd’s to choose to team up with a platform like Zopa. The story is different in the States, where the banks often don’t have a personal loans offering, and thus P2P partnerships make more sense. Jaidev is particularly excited by the challenger bank opportunity, because they don’t have the same burdensome history of wanting to own consumer lending – and are freer to partner with disruptive technology platforms.
Of course, we had to touch on ISAs at some point. The Innovative Finance ISA (IFISA) will come into effect on April 6th next year, allowing UK investors to gain access to tax-free P2P returns. On the impact of this long awaited development, Jaidev envisages “tremendous growth” in long-term capital availability, but was more measured about his expectations for the short term. He sees a slight boost coming in April, but also predicts a lag of about two to three years before any meaningful increase in retail capital materializes.
But are increasing tides of retail money going to force the Zopa platform – which by its own admission prioritises retail investors – to edge out the institutional investors? Not so, says Jaidev, who reminds me that the institutions are valued customers too, and certainly the platform wouldn’t have achieved the growth that it has over the past year without them.
The institutional partners realise that the advent of the IFISA is something of an unknown, but Jaidev believes that their expectations can be effectively managed through the sound forecasting of demand. Indeed, the CEO believes that the amount of institutional capital on the platform will continue to grow, but with perhaps less rapidity than it has in recent times.
Jaidev saved the juiciest quotes for last. Despite being both Britain’s oldest and largest peer-to-peer lending service, Zopa is also one of the few major UK platforms not to have established itself overseas. On the idea of international expansion, Jaidev said:
I think we still have a lot of opportunity in the UK to go after. Do I see us overseas at some point in the plan of Zopa? Yes. Do I see it in the next 12 months? Unlikely.”
Emboldened, I chanced asking the new CEO about the prospect of a Zopa IPO. Here's how he replied:
The most likely future of Zopa is as a public company. Again I think that’s probably two or three years away. We have enough runway with the funds we have, and the expansion plans we have to be there. The size I visualise ourselves in a couple of years is probably the right time for us to seriously consider a listing.
I don’t think anybody, neither the board nor Giles, believes that our destiny is to be a private company forever. I don’t think that will work. I think public company is probably where we need to go.”
This may well be the first time that such words have been uttered by Zopa management in the public arena. But I note that, even while the platform is growing at a stratospheric rate and questions about IPOs are being more readily addressed, the management is rarely given to over-enthusiasm. The timeframes on these major developments remain lengthy. Indeed, the almost obsessively meticulous style in which the platform has been reared stood out a key factor in the initial luring of Jaidev from Capital One. As the excited CEO exclaimed at one point during the interview:
It’s not often that you find ten year old startups!”
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