The Anonymous Widower

Zopa Tweaks The Alogorithm

I am a Control Engineer by training, so I’m supposed to be able to make systems perform in a safe and stable manner.  As an example, when your train comes into the station and stops precisely in the right place, or an airliner lands itself automatically, a Control Engineer will have been responsible for working out the principles of how that is done. I have said before that Zopa is in fact a stable system, but now they have tweaked the algorithm to speed up the lending process without losing any of the stability. It’s all described here in their blog.

The most important way to lend money faster is to create a bigger demand. Zopa asks lenders to spread the word to those with good credit ratings, who might want to borrow money for sensible purposes.

But of course, you won’t get a bigger demand unless you have more money in the pot to borrow! So the whole process should spiral and feed in on itself.

The one thing that needs to be maintained to the highest possible level, is the checking of borrowers to make sure, they’re credit worthy.

But even this process should get better, as Zopa learns more about good borrowers and this feeds back into the system.

The whole system is a classic feedback control system, that has the ability to mutate and change itself by learning from its history.

Does your very average bank, like the Royal Bank of UK Taxpayers behave like this? Of course it doesn’t, as those at the top cast a strategy in stone and it gets slavishly followed to the letter.  Unfortunately, it has no capacity to learn and change in a Darwinian manner.

But more importantly, it can’t respond easily to increased demand and a changed marketplace. Royal Bank of UK Taxpayers also has constraints placed on it, as regards to parameters like working capital.

Zopa just needs to balance their lending to the amount that is deposited by lenders, or as I prefer savers. If I look at my figures for Zopa over the last year or so, these figures have been moving towards balance.

Now with their Safeguard system enabled, the loop has been closed!

July 16, 2013 - Posted by AnonW | Finance | Banks, Engineering, RBS, Zopa