Giles Andrews (Part 1) 042-1
Giles Andrews, CFO of Zopa discusses Zopa's business model.
Transcript:
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A. Today's discussion probably looks quite dull. There is quite a lot of post here so it started -- it started with us saying to our users we have been approached by a film company making a documentary I will add the press release below, they are looking to interview a lender and hear all about their personal experience of Zopa
the press release below is quite broad they are not looking for someone with the answers to climate change but great if you do. The aspect they want from you is your Zopa story. If you would be interested please let me know or if you can think of a another lender get in touch ...
And Adrian responded and said Mandy has said no as our house is a mess at the moment for our re-arrival. She said no way can a television crew come anywhere near our house. Anywhere else I would have been able to sort something out for you. If anywhere else and you don't have any takers let me know. It could be the beginning of a Hollywood career.
So we responded "Ha! Don't argue with a pregnant woman..." but we knew she was pregnant because we obviously know her very well. I pinged off a E male "thank you... see what happens someone else chips in with "In true hollywood style why not have a meet in a quiet hotel somewhere like the stores press conferences I will look out in listings and perhaps Edward can give us a hotel on the date for broadcast." You then wrote and said it doesn't have to be their home but the alternative could be another location which has some relevance with them work place club blah blah...
He then says I have spoken to Ivo from the film company this evening made my demands for red and green M&Ms only my own dressing room et cetera. Provisionally they are coming up here on 29th March. I am DJing that night at a Buddy Holly tribute so they are wanting to get some footage there also. I hope you will get a good bit of press for Zopa did you ask to be freshly painted... isn't that fantastic.
Q. (Inaudible questions)
A. (4.54) There is no correlation between a we know -- well, we don't automatically know who these people are because their user names on the discussion boards are not necessarily the same as their user names on Zopa, but they generally are so we generally know who they are and, in Adrian's case, we certainly know who he is and there is no correlation between contribution levels on our discussion board and lending at Zopa ie the amount we lend.
So our biggest lender who has lent about half a million pounds has never, to my knowledge, raised any word on our discussion boards. And many of our smaller lenders, lending in the hundreds, are very vocal. So to me that is quite interesting and why not? I mean their experience of Zopa is just as relevant to them as someone lending half a million pounds and they have just as much right therefore to be a contributor to what we do and in many cases are extremely vocal about what what they think we should do.
Q. So they support each other very well...
A. Yes I think, right, sure. I mean, in purely pragmatic terms, financially we need the bigger lenders more than we need the smaller lenders but we also need a sense of community and therefore anyone who wants to invest time and energy in that sense of community is fantastic and the views are expressed by people like that on what we should do with our business and how we should develop it are just as valid and, therefore, they are listened to in the same way. So we don't look at it through a lens and say like 'we will listen to him more because he lends more' because that is not remotely a filter we look at things through.
Q. Could you start with the story of last night. Not necessarily the... just say what happened. We also could just angle the laptop really... okay... so yes what happened?
A. (7.23) Well there is a two day conference going on in London at the moment which I think is called the Global Retail Bankers Conference or some such thing and they had a awards ceremony last night and we found out we have been nominated to win an award for "Most Threatening Non Bank" Competitor, which we thought was quite interesting and other worthy candidates for the award were Wallmart, PayPal, Vodaphone, Prosper, an American company that does similar thing to us and ourselves.
And we won, which was really exciting.
So I made a very short (inaudible) speech and told a group of very worthy bankers that I felt very grown up to have one an award in their presence, which raised a laugh, and then I was not so much sure that many of them considered me threatening but I thought intriguing was perhaps a nice way to be described. I like the sound of intriguing more than threatening, but I mean we have won a lot of awards. We have won an award by a magazine The Banker last year which is an offshoot of the FT.com and we won technology awards, we won webby, which is the internet equivalent of the Oscars and so there are all sorts of worthy people out there on judging panels who think what we do is interesting, which is great.
Q. What do you think they mean?
A. I think the banking industry is doing its very best to threaten itself at the moment so the sort of tone in the room yesterday was quite subdued and then people talked about the big issues facing their industry. So I am not really sure. We are different and we have captured the imagination and consumers like us and banks would love it if their consumers liked them and so, on that basis, we are threatening because people say nice things about us.
Q. What is wrong with the banking why is it threatening itself where is it going wrong?
A. (9.33) Well it is the age old issue that I do not think banks are terribly good at looking after their customers. So by that I mean that I do not think they always act in their customers' best interests. Banks are very important part of our society, so we are not on some sort of anti-globalisation crusade to destroy what is quite an important fabric of the world and banks provide a very useful service. I mean capital is something that makes the world go round, so providing it is a good thing. I think where banks have got themselves into trouble is by optimizing their returns from consumers and in some ways being seen to charge disproportionate amounts to people who are actually probably the most vulnerable people, who can not necessarily afford to pay it. So I was talking to a guy involved in the credit union movement here, yesterday actually -- not at the awards thing -- and he was saying that, in their research, the credit union members are saying, if credit unions launch a current account, they should do so without free banking because free banking is understood to be a very untransparent way of disguising or hiding from the fact that you are making enormous charges to some consumers and would it not be fairer if people who bounced a direct debit or went overdrawn for a day were charged a fee that was appropriate to their crime and if that meant that banks had to charge a reasonable fee to the rest of their services to people who did not commit that heinous crime, that would sort of seem to be fairer, which I thought was an interesting perspective. So I think for a while consumers have not trusted banks to look after their best interests. I think the events of last summer and onwards have just taken a completely different dimension to that where, when we launched our company, we thought one of the most important things we needed to do was focus on building consumer trust. So we had a completely new idea. We don't have big marble offices and shiny branches and all those things which are external badges of security and stability and all those things. So we needed to work very hard in trying to create consumer trust in a completely new field and the one thing we took as a given was that, even if consumers did not necessarily like their banks, they did trust that they would be around and those marble sort of pillars by the entrance door meant something and recent events have just shown that is not even true. So the lack of consumer trust was the big thing of the evening last night. There was an external speaker who talked at length about how banks have squandered trust in the last six months, in many cases through no fault of their own -- just by being a bank and witnessing queues of people standing on the high streets of Britain taking their money out of northern rock really shocked people, and that has been a quite an interesting thing, if you like, for our cause.
Q. I see banks as I do not know my bank is NatWest and they seem to be fine, not particularly helpful, I try and avoid going into branches, I don't to to get to know them any better, I am sure they make loads of money and I do not see them as necessarily unpleasant...
A. (13.32) Well they probably don't rip you off actually. I mean they probably provide you with a good service and because you are probably a good customer and probably don't ever get into trouble they probably don't rip you off and you probably have not been stung with charges for things that are not really fair, so you may not be a good example of the kind of people that feel abused by their banks currently waging war with them and taking them to court. I mean, I suspect most of our customers similarly are not people who have suffered particularly badly at the hands of UK Banks PLC.
Q. But there is something... what do you think it is saying that idea of not a threat but just a... do you think banks are having to sit up and notice you a little bit?
A. Yes I think we get talked about in the corridors of power. We get talked about. I think they are concerned that our business model is fundamentally more efficient than theirs so, because we are not a bank and because we are not a deposit taking institution -- so money that our lenders give us never goes through our books, it doesn't sit on on our balance sheet -- we are not regulated as a bank so therefore we don't have to have regulatory capital because all capital is either used, sitting safely on behalf of lenders in a client account or it is actually being put to work lending directly to borrowers and therefore lenders can not suddenly say I want all my money back so we don't have to have capital in reserve to protect that eventuality and that makes our business model more efficient so, effectively, the cost of capital at Zopa is the cost that is attributed by our lenders rather than that cost plus an amount of money that has to sit in reserve on a balance sheet. So we are more efficient than them and I think the more considered people in that industry are probably aware of that and therefore think 'hang on an minute this could be quite interesting, if this grew to a multiple of its current size then it is quite a threat'. On a business model basis but I think more emotionaly -- well rewind a bit.
Banks don't lose a customer every time we recruit a customer so were you to choose to lend or borrow with Zopa you would still keep your current account with NatWest. So they have not lost you but they have lost the opportunity perhaps of selling you a product, so they might have lost a opportunity to take your deposits, which they probably need right now, or they might have lost you the opportunity to sell you a personal loan or sell you a balance transfer on to your credit card -- which are all services they make quite a lot of money out of so they have potentially lost a revenue source out of you.
Q. Is there something deeper about the way you work as a company they could also learn from, not necessarily just the unique service you offer, but the ethos?
A. (16.46) Well I mean they could learn to listen to their customers a bit more but that is not quite as simple as saying 'We want to listen to our customers' because you have to create an environment where the customers want to talk to you.
So if the chief executives of the major banks took very seriously a new mantra called 'I want to listen to everything my customers tell me' the chances are they would not hear a great deal because why would you -- what would prompt you to communicate with your bank in an open, friendly way.
Maybe over time, if there is a cultural change, their consumers might start start engaging with them but immediately they would not. Whereas, I think from the very beginning, we intended our consumers to engage with us fundamentally and that to be a fundamental part of our business and they know that, therefore they choose to do so. So it is a two way thing in other words.
Q. Why did you decide that that was such a important part of the business can you talk me through how Zopa came about?
A. Well Zopa is a community. In economic terms, Zopa is a market place and one of the inputs into lanching Zopa was that we believed, 3 or 4 years ago now we are talking, we believed that there were certain businesses out there, some of the social networking sites that we all use did not even exist then but there was still a growing trend that people were enjoying interacting with other people on the internet and there were businesses like Ebay achieving unbelievable results in terms of customer acquisition which transcended the merely, purely rational. So, yes, you get good deals on E bay -- when you buy things they tend to be reasonable value but that is not the be all and end all of it all.
There is something around consumers interacting with other consumers and feeling that by interacting with other consumers, they are mutually, together, working on getting a better deal. So that was an input into what we did -- into the start of Zopa -- and as a market place, we thought this will be much more powerful if this is a market place that also has a vibrant community attached to it. Effectively a community and market place merge and so it was always our intention from the very beginning to try and create a sense of community.
Q. You have managed to -- why do people would want to join a community like that...?
A. Yes, I do not think you can create a community cynically, so you are absolutely right -- there are probably marketing departments in all sorts of corporations saying 'What we need is community' so --
Q. There might be though...
A. I think it did, did it not.
Q. Sorry.
A. That is all right.
Q. I was just asking you...
A. About community.
Q. It is not easy...
A. (20.14) No and I think there are lots of people who intend to set up communities who do it rather cynically and so there are marketing departments in UK PLCs who say what we really need is a sense of community. So, you know, charge some underlings to go off and create it and I do not think that the world works like that at all and I think communities only exist because the community members think there is some value in them. So what we said was we thought it would be helpful if we had a community but there is nothing we can do, concretely, to create one -- we just have to sort of create the environment from which one might grow and, thank god, one has because I am not sure what you do if it doesn't and, if it doesn't, it is probably because there is fundamentally nothing interesting for that community to talk about.
Q. Isn't it that you give them sort of responsibilities...
A. (21.15) Well, not every time. We don't do everything our communities suggest we do so -- but you are right I think there is a perception that their suggestions are such that you can feed off and we are contributors to the community and so we don't moderate the community for example, although I did once ring up a poster who wrote something I considered to be libelous and very politely asked him if he would remove it and he did.
So I did not think it was appropriate for me to remove his post, even though I was sorely tempted to but we asked some of our more active community members if they would fancy moderating it and I think that was more because communities can get overtaken by spammers and, you know, I do not think you moderate an community to create a corporate line, for example, although some people perhaps do but that was certainly not our intention.
The moderation was intended to stop people being rude to each other, to stop the possibility of anyone taking offense and to stop people highjacking it in the cause of spam marketing or anything like that and that is what the moderators do so, you know, they think -- what the FSA would consider light-touch regulation. But is it not great that there is a group of six or seven people that said we will take the time and trouble to spend our time perusing this community and making sure that everyone is acting responsibly.
Q. If NatWest set up something, I don't know, they probably would be really worried that it would all go wrong, full of people saying how come you are able to to do that, turn that into a real... whereas others...
A. (23.17) Well my suspicion is that there is not anyone in our community who actively wants to sees us fail. So even the criticism, and there is a lot of criticism -- so we do things that our members think are stupid quite often or we make mistakes -- but, even when they are criticising us, they are doing it from a constructive stand point.
I mean sometimes actually quite aggressively, because I think the other interesting thing about internet communities is people probably are more outspoken on them than they would face-to-face. I have rung up a few people and said 'Did you really mean that?' and they go, 'No, no not really, a weak moment sitting there typing.'
So to answer your question why -- would someone like NatWest be nervous? I suspect they would. But I think it is more fundamental than that. I just don't think the community would happen. I mean, could you imagine a group of people -- what would the discussions be about? 'I got a letter in the post today and it showed me that they had charged me £28 for my unauthorised overcharge.' It is not a conversation is it? It would just be a series of statements and I am not sure how anyone would interact. Whereas the bulk of our community is someone saying 'I can not work out what this screen tells me, anyone got any ideas' or, you know, 'One of my borrowers has missed a payment, what do I do? So they are actually asking the community for help.
Q. That is great, I mean that saves you loads of time responding to individual e-mails about what has happened?
A. Yes I do not know what the statistics are because we obviously get a lot of emails, so not all members of Zopa participate in our community by any means. So we get a lot of those requests which we answer but I would have thought we have probably saved a significant number of them by virtue of the community which is a great thing.
Q. But you are quite pleased about the difference between you as a organisation, rather than a typical bank. Why are people gathering round this...?
A. (25.44) Well, I mean the central tenet of the business is that people work together. So people lend and borrow between each other at Zopa. So there is intrinsically a human element to what we do -- which is not in a bank. So I go to a bank and hand in my salary cheque and it goes into my bank account so I am effectively making a deposit and that deposit is used in some form or another to make a loan to someone else but I do not perceive that. I don't have any feeling of that. So whereas in our business there is a very direct correlation people who are completely aware -- that is why they join Zopa, that is why they interact with Zopa -- because they are aware they are either borrowing from real people or they are lending to real people and so for me that is quite a natural extension from that activity into talking to people and that is what we see in our community.
Q. ... (inaudible)?
A. Yes £50 probably.
Q. (question about transparancy and banking websites)...?
A. Well they would not want to do that would they. They would not want to do that because they would not want to set a precedent in terms of responding to individual customer complaints in a public arena because that could potentially be used against them I suppose or set a precedent. So, if they flat rejected you, then they are on a hiding to nothing, are they not, so hypothetically you would make a post on a public forum saying I am unhappy with my bank charge. What can they do? So they write back and say we consider your bank charge to be entirely fair so we are not going to do anything about that, in which case they risk being quoted in all sorts of consumer publications or all sorts of court cases or whatever around what their view on your fair bank charge was or alternatively they say Ivo, you know what? We have considered it and we think the charges are excessive, so we are going to give you a refund -- in which case they are going to get 8 million other requests, so they are hiding to do nothing.
Q. Why are you so in favour of that... why are you able to do that?
A. (28.12) I do not think we do anything that -- other than when we make mistakes and when we make mistakes actually we are quite happy to acknowledge it and say so, because I think the first rule of life is, if you make a mistake, first admit it and then tell people what you are going to do about it and, actually, we probably learned over time there has been the odd mistake we have made which we have not necessarily admitted immediately and people have found out very quickly and we have typically, on those occasions, suffered more than had we admitted it very quickly. So that has always been a good lesson but we don't fundamentally -- I do not want to sound too sanctimonious here but I do not think we do anything that is fundamentally bad. So therefore we don't have to be ashamed of any fee we charge or way we behave. So therefore why would we not be transparent and clear in our communications. I am sure that people in banks similarly try and persuade themselves on a regular basis that they don't do anything bad either but I think their consumers probably think that some of the things they do are bad and they sort of know that and, therefore, they would be reluctant to talk about them too much. I do not want to sound too anti-bank here because, you know --
Q. I know, but I do think you are describing a completely different way of doing business. I mean the old model way would be to hide things from your customers- don't admit any mistakes don't show the information you are basing your decisions on- and you are saying tell the customers everything tell them all the information you have, make it as open as possible and when you make a mistake show them the mistake?
Q. (30.06) Yes, but I think the reality is that we probably don't believe in telling our customers every mistake we make because we think that is the right thing to do. It is more that I think that we live in a world today that is increasingly transparent and Zopa has set out to be a extremely transparent organisation -- everything we do, from you witnessing our morning meeting this morning, everything we aim to do is completely transparent and, if you are transparent, then you are going to get found out and, if you are going to get found out, then you might as well tell people. It is sort of the reverse I think. We don't have a brand value or a sort of mantra that says we will declare every mistake we ever make. It is more people are going to find out about our mistakes, and we do make them, so better to tell them than let them find out -- if that answers your question?
Q. It does but I think you are making it sound less exciting and different than it is. I think that you have to do that if you go to this way of working, you can not escape, you cannot say we had a meeting to discuss that, and something or other, but you have have to show why you are doing it and it makes you make good decisions. And it means everyone is accountable instead of having to fork out, everyone has...
A. (31.47) No, I think that is a good point. So I think it stems from, if the mantra that comes from the direction of the company is that we want to to be transparent, then that percolates through the organisation to the point that everyone knows that everything we do is transparent, so everyone does feel accountable and I would say that is more by accident than design. So I do not think we sat around saying let's create an organisation where everyone feels accountable. I think probably most organisations want people to feel accountable but I think the accident is that by creating a completely transparent environment that just makes people feel accountable and that is a great thing. So I am sort of playing -- I am not -- I am trying to suggest that we have not been terribly clever in what we have done but I think what was 'clever' was saying we want to be transparent, because everything else follows from that and I think there is a lack of transparency in many established businesses.
Q. I would say there is a connection between efficiency and transparency, do you think you are able to make everyone accountable is has broader benefits to Zopa? you are giving them power to do a lot of things, "do what you like", you can push the boundaries yourself, you are giving everyone a lot of more responsibility and that is a bit more efficient as well because immediately... there are all sorts of benefits for a business to do that?
A. (33.35) I think that the point about many established businesses not being transparent is they are not transparent all the time. So I think they would aim to be transparent some of the the time and I think transparency is perceived to be a general good thing but it is not something you can turn on and off. It is not something you can say, well ...
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