Zopa and P2P lending in the UK

Christine Farnish CBEChair Zopa Ltd

P2P Model in the UK

Strictly Private & Confidential 3

14 years ago, Zopa invented a new model of lending

P2P platform (36H permissions)

Funding

Receive principal + interestInvestors Borrowers

Funding less loan origination fee

Usually retail consumers and

institutional money

Retail consumers or established

SMEs

Platform facilitates lending and undertakes

risk management

direct legal contract

Pay back principal+ interest

+ servicing fee

Note: Investors usually pay a fee when selling their investments.

Strictly Private & Confidential 4

P2P lending is a more direct alternative to traditional lending models

Source: Oxera 2016, The economics of peer-to-peer lending.

Strictly Private & Confidential 5

The UK market has provided the conditions to support the growth of P2P lending

Digitally savvy consumer base with high adoption of digital for retail propositions

1

2

3

An advanced and robust regulatory regime recognising the need for increased competition and innovation outside of traditional markets

Strong financial services skillset and network of supporting service businesses (e.g. credit bureaus)

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The P2P market is still small, but provides alternative risk-return products to consumersUK savings & investment market, 2017Bubble size represents size of market, in £bn

Zero / low risk & return High risk / volatility & return

Co bonds£25bn5-6%return

Savings£1,450bn

0-2% return

NS&I£150bn

0-1% return

P2P£5bn4-7%

returns

Mutual funds£750bn

5-10% return

Equities£800bn

c.10-15% return over mid-term

Short term access Long term horizons

Source: GlobalData 2018; Cambridge Alternative Finance Report

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Over the last decade UK consumers have earnt below inflation returns in savings accounts

Returns by Asset Class(% return)

Asset class Annualised Return (%)

Cash savings 1.9%Inflation 2.7%

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10152025

2005 2007 2009 2011 2013 2015 2017

Cash* Inflation

*Deposit Accounts (Bank of England)

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The FTSE index has been highly volatile

Asset class Annualised Return (%)

Cash savings 1.9%Inflation 2.7%FTSE 100 9.0%

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10152025

2005 2007 2009 2011 2013 2015 2017

FTSE All-Share total returns Cash Inflation

Returns by Asset Class(% return)

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Managed, diversified P2P platforms like Zopa can offer a less volatile, inflation beating return

Asset class Annualised Return (%)

Cash savings 1.9%Inflation 2.7%FTSE 100 9.0%Zopa P2P 5.2%

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10152025

2005 2007 2009 2011 2013 2015 2017

FTSE All-Share total returns Cash Inflation Zopa

Returns by Asset Class(% return)

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Whilst ensuring customer satisfaction on both sides of the platform

Strictly Private & Confidential

Incumbents have poor NPS1

1 – NPSBenchmarks, Barclays Strategic Report 20172 – Average NPS scores of selected customer focused tech companies3 – YouGov Poll 2018, Mintel Loyalty in Financial Services Report 2017

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(1)

920

27

7176

UK

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9.7 out of 10

Best Personal Loan Provider (2019)

Best Customer Service (2018)

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This has translated into an impressive growth story for Zopa as Europe’s largest consumer P2P

149

532

1,021

2005 2010 2015 2018

Annual origination volumes since inception (£m)

Our future strategy

Customer aligned products…

Unsecured Personal LoanNo early repayment fees

Credit cardsNo 0% transfers

Saving & investmentsNo front book and back

book pricing differentiationPrioritising existing customers

Auto loansSoft checkTransparent pricing

…delivered through award winning experience…

…embracing open banking to enable customers to get in control of their finances

Simplifying finances: Everything in one place, securely and in customers’ control

Snappy insights: To act on, whetherto avoid chargesor work towardsa bigger goal

Great value:Personalisedpricing

The best place for money…

A one-stop shop for managing money = the best place for money

2020+

A next generation bank

Best personal loan provider

Most trusted peer to peer platform

2018

Speedy fixed term savings and straightforward creditcards

Seamlessly combining savings and P2P investments

2019+

Providing fairer, better value products

Putting customers in control with powerful insight and simple tools

Easy, intuitive and built for the future