Zopa Co-Founders Speak Out Against Fintech’s Peer-To-Peer Exit
The title of this post, is the same as that of this article on Financial News.
Read it, as it a cautionary tale about what happens to disruptive innovation.
Eventually, the big bad boys make sure you don’t disrupt their easy life.
Zopa has been part of my life for fourteen years and it did me well. Especially in the bad times and when I had a personal crisis.
I wrote Stability in Financial Systems in 2012, where I said this.
I have a strong feeling that Zopa, the peer-to-peer lender, is also a stable system. Other companies of the same type may well be too! but I am not as familiar with them as I am with Zopa.
Unfortunately, the decision makers in Zopa decided to become a bank, broke the stability and crashed the company.
Son of Zopa will arise!
Zopa Pulls Out Of P2P Consumer Lending As It Blames Cowboy Firms For ‘Damaging Customer Trust’
The title of this post, is the same as that of this article on City AM.
This is the first three paragraphs.
Peer-to-peer giant Zopa has started to inform customers it is closing down its P2P consumer investment division, transferring its loan portfolio to its relatively new bank unit.
In an email to customers, Natasha Wear, peer-to-peer CEO at Zopa, wrote that “after 16 years of peer-to-peer consumer investments at Zopa, we’ve taken the difficult decision to close this part of our business..
“To support this, Zopa Bank will be buying your entire loan portfolio at current face value without any of the fees you’d normally pay for a loan sale,” the email reads.
This is a very sad day.
I have been an investor in Zopa for fourteen years and it has done me well, returning four to five per cent before tax in that period. My first investment was the money, I received from the sale of C’s Porsche.
I also feel that since Giles Andrews ceased to be at the head of the company, Zopa rather lost its way.
Perhaps, their mathematical modelling wasn’t up to scratch.
But at least, I haven’t lost any money on my investment.
Gore Street Energy Storage Fund Revenues Boosted Amid Market Volatility
Over the last few years, I have blogged about energy storage and two energy storage funds; Gore Street and Gresham House.
According to an article on Proactive Investors, with the same title as this post, Gore Street hasn’t been doing badly lately and says this about their recent performance.
Gore Street Energy Storage Fund PLC said its assets in Great Britain generated revenues two times above forecast in September and added that industry is only at the start of its growth curve.
When I saw the concept of an energy storage fund, as a Control Engineer, I liked it.
The wind doesn’t always blow and the sun doesn’t always shine, so something is needed to cover the gaps in the supply.
The obvious way to cover the gaps is to put a battery in the circuit.
- When the electricity supply is higher than the demand, the surplus electricity can be stored in a convenient battery connected to the grid.
- When the reverse is true and there is a deficit of electricity, the energy in the battery can be used to make up the difference.
The battery works with electricity, just like a bank works with money, except that batteries don’t pay interest.
- The battery owners do make money by buying electricity, when it’s cheap and selling it back at a higher price.
- Tesla and others will sell you both batteries and the controlling software.
- Some areas with perhaps high levels of wind and solar or unreliable power supplies could use batteries improve the robustness of the electricity supply.
- More wind and solar power will inevitably lead to a need for more energy storage.
- Battery technology will get cheaper in terms of the cost per MWh of storage.
- Battery-grid interface hardware will get more capable.
- Management software will get better at balancing the grid.
This all adds up to increasing opportunities at possibly lower costs for energy storage funds like Gore Street and Gresham House.
So we will inevitably see a growth of energy storage funds.
But they will change.
New Battery Technology
There are several new battery technologies, that I believe could prove to be competitive in terms of capacity, cost, efficiency and reliability when compared to lithium-ion batteries.
Some of them will also have the advantage of only using easy-to-source, environmentally-friendly materials in their manufacture.
Some battery technologies are also easier to scale up, in that your have a central unit, which is connected to several stores. So to scale up, you add another store to the central unit. Highview Power’s CRYOBattery works on this principle.
I can see energy storage funds taking off faster, when someone designs the ideal battery for their purposes.
More Energy Storage Funds
We will see more players enter the energy storage fund market, just as we saw more players enter the peer-to-peer lending market. But just as that market attracted men with silly hats, boots and horses, not all will be reputable. But there are signs that banks I might trust are entering the market.
I also think there could be a hybrid model, which is almost a cross between an energy storage fund and peer-to-peer technology.
But be prepared for financial innovation.
And always do due diligence before investing.
Local Energy Storage Funds
I can envisage sensible established players offering investment on a local basis.
So perhaps the residents of a town with a need for a battery, might like to help fund it.
Or just as Aviva with their strong connections to East Anglia helped to fund Greater Anglia’s new trains, they might fund a battery in perhaps Cromer.
Conclusion
I feel the future is very rosy for energy storage funds.
A Reason To Be Cheerful
I have a good reason to be cheerful.
When my wife died in 2007, I had the problem of what to do, with the money from the sale of her Porsche.
Peer-to-peer lending was just starting, so as a trained control engineer and mathematical modeller, I gave them a good check out!
I then put the money into an automatic peer-to-peer lender, where you deposit the money, forget it and the computer lends it out. Some of my family and friends, including my accountant were horrified.
Then came 2008 and the banking crisis. Like a Flower-Class corvette in the teeth of an Atlantic gale, it bounced safely through the crisis.
Since, then it has earned more than the stock market and grown.
And it repeated a similar safe passage through the Covid-19 crisis.
It does seem that there are always people with a good credit ratings that want to borrow money.
How much of the money borrowed in 2020 was for home improvements to cater for a home office or home schooling?
Conclusion
I blame my mother! I got my skill with and feel for numbers, from her genes and the tutoring she gave me,
She had won a scholarship to Dame Alice Owen’s School, but was unable to go to University, due to lack of funds, so she became a comptometer operator in the Account’s Department at Reeves, who used to make artist’s materials and were based just round the corner from where I now live.
That was probably, the only sort of job a mathematically bright young lady could do in the 1920s.
Zopa Seems To Have Deconstipated
In early March, I wrote Is The COVID-19 Having An Affect On Lending At Zopa?, where I said this.
I lend money on Zopa and at the moment no-one seems to be borrowing any money.
I put some of my pension in my lending pot into the peer-to-peer lender each month and it’s still there sitting safely in the queue for a borrower.
Perhaps everybody is being cautious because of the COVID-19 alert.
At the time of writing this new post, everything seems to be back to normal. Or at least money, that I put in my lending account yesterday, has now been allocated to borrowers and is awaiting the final checks.
Eight years ago, I wrote Stability in Financial Systems, where I put forward my belief that Zopa is a stable system, that adjusts itself to the conditions it encounters.
Has the peer-to-peer lender just demonstrated, that my thoughts are correct, by sailing untroubled through the COVID-19 crisis, with just a small adjustment on the tiller here and there, just as it survived the Banking Crisis of 2008?
Zopa Resumes Lending To ‘C Risk’ Borrowers
The title of this post, is the same as that of this article on Peer2Peer Finance News.
Zopa, the first peer-to-peer lending site, rates all borrowers as to risk, between A (the best) down to E.
Certainly, since they introduced this policy, my invested money gets lent out more quickly.
Hopefully, the risk won’t have been increased by an amount, that is unacceptable to lenders.
What Exactly Is Upside Energy?
On Friday, August 9th, 2019, there was a massive power cut in the South of England, that is described in this article on the BBC, which is entitled Lightning Strike ‘Partly To Blame’ For Power Cut.
This is the introductory paragraph.
A lightning strike and the sudden loss of two large electricity generators caused nearly a million people to lose power in England and Wales earlier this month, an interim report has found.
So what exactly happened?
This article on Wired is entitled How Batteries Stopped The UK’s Power Cut Being A Total Disaster, was written after the report into the cut had been written.
This is the third paragraph of the article.
But it could have been even worse. Within seconds of problems hitting the grid, a fleet of batteries dotted around Great Britain were able to pump power into the system, preventing a rapid drop off in transmission frequency.
Is fleet the right collective noun for storage batteries? But it will do for the time-being.
This is the next two paragraphs.
Upside Energy is one firm that lent a helping hand by supplying six megawatts (MW) from five large lithium-ion batteries located on a solar farm near Luton Airport. “Those batteries responded immediately – actually it was sub-second,” says the firm’s chief executive Devrim Celal.
Six megawatts may not sound like much. It’s about the same capacity as a single medium-sized wind turbine, but in the context of national electricity supply that can make a difference, says Tim Green, co-director at Imperial College London’s Energy Futures Laboratory. “A home on average is consuming about two kilowatts – six megawatts gets you 3,000 homes maybe.”
But every little helps!
So who are Upside Energy?
If you look at their web site, this is the headline on the home page.
Smart Energy Management Systems
There is also this description.
Our award-winning cloud-based platform provides our customers with a way to capitalise on new opportunities, while supporting an acceleration in the use of renewable technologies, and overall helping to create a more sustainable and efficient power network.
From what I can gather with further reading, it almost looks like a peer-to-peer network for energy, akin to how Zopa is one for money.
- If you or your company, built a battery or a solar farm, then Upside Energy would control it, in the most efficient way.
- As the Wired article states, they also have a few batteries of their own.
On another page they describe the system as a cloud-based platform can connect with a multitude of devices across commercial, industrial and domestic sites. They give the following examples of devices.
- Battery storage systems.
- \electric-vehicle charging points.
- Uninterruptible power supplies
- Heating and cooling systems.
They then say a bit about how it works.
It uses advanced algorithms and artificial intelligence to match energy demand with the available supply, helping the electricity grid deal with fluctuations and times of peak usage. Supporting the grid in this way, opens the doors to additional revenue streams for our customers, who also benefit from significant reductions in energy costs and carbon emissions.
The platform can manage demand response for more than 100,000 devices running in parallel.
As a Control Engineer, whose friend went on to manage ICI’s power networks in the North West, I know management of these complex networks was difficult even in the 1970s.
It is interesting to look at their funding page.
- Legal & General is an investor.
- systemiQ is an investor.
- Innovate UK is present, as they are in many British technology developments.
Funding would appear to be typical for a company like this.
Conclusion
If I was a farmer, who was investing in a solar farm on a piece of land, I would check out Upside Energy.
But I’m not!
Over eight years ago, I wrote Stability in Financial Systems, where I used my Control Engineering and mathematical experience to postulate that Zopa might have found a way to create a system with an equilibrium between saving and borrowing, that responded to politics, the economy and unforeseen circumstances.
Could Upside Energy have created a system that balances energy production, storage and use, which navigating the perils of the modern world?
Zopa: P2P Investors Outperformed The FTSE 100 In 2018
The title of this post is the same as that of this article on Peer2PeerFinance News.
The title is a good summary of the article, which is a must-read.
The Concept Of Hybrid Banking
I have been writing about hybrid trains and locomotives recently.
In Hybrid Power On The Railways, I summarised the current state of development, with brief descriptions of the current hybrid trains and locomotives.
This was my conclusion.
Just as hybrid cars are becoming more numerous, I suspect we’ll be seeing more hybrid trains in the future.
So can hybrid principles be applied to other industries and processes?
A Standard Hybrid Process
In my opinion, one of the best hybrid systems is the transmission of London’s New Routemaster bus. This description of the drive-train is from Wikipedia.
The bus is a hybrid diesel-electric driven by a battery-powered electric motor, charged by a diesel fuelled generator and recovering energy during braking by regenerative braking.
It is a classic serial hybrid vehicle.
Energy is collected in the battery from the diesel generator and regenerative braking and the battery powers the bus.
Hybrid Banking
Could a bank account be designed on similar principles?
- Money would be collected and stored in a deposit account, where it would earn interest.
- There would be a wallet or current account, where sufficient money is available to pay bills expected.
I also believe that just as in the bus, there would be a clever control algorithm, that made sure money was in the right place.
- To pay bills.
- Earn maximum interest payments.
- Avoid charges for going overdrawn.
Many would believe, I’m asking for the impossible.
But!
Zopa Or Another Peer-To-Peer Lender As A High Interest Deposit Account
I use Zopa to store my excess cash.
I just add money, when I have spare.
Zopa’s computer decides, who I lend it to, so it’s effectively deposit-and-forget.
Since, I started investing I have earned returns of around five per cent before tax.
Any irrecoverable debts are now allowed against earnings.
But the unique property of Zopa and probably some other peer-to-peer lenders, is that each month a certain amount of money becomes available for reinvestment or withdrawal.
These figures show the percentage of money, I’ve had available in the last few months.
- May 2018 – 7.5%
- April 2019 – 6.0%
- March 2019 – 5.7%
- February 2019 – 5.6%
- January 2019 – 6.1%
- December 2018 – 4.7%
- November 2018 – 6.9%
- October 2018 – 7.1%
- September 2018 – 6.7%
- August 2018 – 7.5%
- July 2018 – 6.8%
So it looks like for a mature Zopa portfolio, around 6-7 percent is available for reinvestment or withdrawal.
If like me, you have tax bills to pay at various times of the year, you might sometimes take the latter option, as I do!
But if you do withdraw money, your ratio will change.
It should also be noted that a high proportion of Zopa contracts make payments on or around the first of the month. So lenders can get a sizeable payment in the first few days of a month. All very handy!
Nationwide Or Any Other Bank Account As A Wallet
I use Nationwide as my bank current account, transferring money between Nationwide and Zopa as required.
I also have a sensible agreed overdraft limit, which gives me an extra amount of flexibility. I think it’s only been used twice in the last couple of years at tax payment time.
As the overdraft limit is lower than the minimum amount of money, I’ll be able to withdraw from Zopa in a month, I know that if I use the overdraft, I should be able to repay it quickly.
The Control Philosophy
I don’t use a computer to work through the control philosophy, but I can use the brain I was born with.
By about the twentieth of the month, I can see the state of my finances and generally know, whether my pension will cover my expenses for the next month or so, or if I need some help.
So when the Zopa payments kick in around the turn of the month, I withdraw what I think I’ll need.
If I draw out too much, then around the twelth or so, I put any surplus back into Zopa.
A Hybrid System
I believe that what I have described works in a similar way, as a typical hybrid drive system for a bus, train or car.
- Zopa backs up the bank account and provides extra finance when needed. This is a similar function to the traction battery in a hybrid vehicle
- The agreed overdraft facility is there if any extra short term finance is needed. It has a function similar to capacitors in a hybrid vehicle, where they are used to provide a fast smoothing response.
Imagine an on-line banking system, which used artificial intelligence to calculate how much extra money is needed each month and transfer money to and from Zopa accordingly.
Is Peer-To-Peer Lending Having A Spot Of Bother?
There have been one or two news reports questioning asking tis question.
I invest in Zopa and I have made the prudent decision to put my spare money in a Safeguarded product.
I have had a good run and certainly get more on my savings than I would in a bank. Obviously, I am including any bad debts in this statement.
I shall watch the situation, but I still believe what I said in Stability in Financial Systems.
If there are rumours of a spot of bother, then the following will happen.
- Investors will put their money elsewhere.
- Rates to lenders will rise.
- This will tempt nvestors back in.
It’s a merry-go-round for money!
Note that because Zopa matches investors and borrowers by means of a computer, no human bias can drive the system in a wrong direction. Except a bent programmer and hoipefully systems are in place to check the honesty of their employees.
The Anonymous Widower 