New Young Market Options

[savaroony]

Over the next few weeks, we will be launching the Young Markets: Young36 and Young60.

What is the Young market?
It’s a marketplace specially created for young borrowers aged 20-25 years old, who often struggle to get approved for unsecured loans. This is not usually because they have any record of bad debt, but more often because they don’t have sufficient history of debt.
So unlike other loan companies, we won’t penalise a borrower just because they’re young and have very little history of repaying debt. Instead, we make sure that they’ve have no bad debt, that we can identify them properly, check their employment and affordability and that all the other information they give us is OK.
We then offer them a special marketplace where these responsible young adults can get the financial help they need during their early careers from lenders who are prepared to take a little more risk for a little more return.
Zopa attracts a great many of these borrowers; 28% of all applications over the last 12 months have been from those in this age bracket but until now, less than 5% of them have been approved.


Key facts:
• All borrowing applications from people aged 20-25 will be eligible for the Young market only. These young borrowers will never appear in the A*, A, B or C markets.
• Zopa will still run all the usual checks on Young market applicants to check identity, address, fraud, affordability and employment. As long as they have no history of bad debt AND they pass all these additional checks, they will be approved for borrowing from the Young market.
• Our risk director has used data on these borrowers from the wider unsecured lending market to assess bad debt when coupled with our own entry criteria. The net result is that bad debt predictions for the Young market are similar to those for the C market, as follows:
Young36 - annualised bad debt = 3.7%, lifetime bad debt = 5.7%
Young60 - annualised bad debt = 2.9%, lifetime bad debt = 7.6%
• Any student loans that a young borrower already has will be considered when we calculate affordability.
• Currently Zopa operates a system where money offered to a market can ‘percolate’ upwards. This means that a 10.0% offer in the B36 market will also be made available to the A36 and A*36 markets, but not to the C36 market or any 60 month markets as this is beyond the risk level and term that you’ve indicated you’re happy with in this case.
Offers made to the Young market(s) will NOT percolate like this. Money offered to A*-C markets will not be applied to the Young Market and likewise, money offered to the Young Market won’t apply to the A*-C markets.
• Young borrowers who pass the scorecard for the Young market will be able to use listings for their loan too.
• We're aiming to launch the lender functionality of these new markets during the first couple of weeks in July. This will give you time to choose to include these new markes in your offer(s).
• Full borrower functionality will launch at the end of July. As of this point, any young borrowers passing the scorecard will no longer feature in the A*-C markets.


Please do let us know your thoughts via this thread.
Thanks
S

[sl75]

Some initial thoughts:

- what about a 23-24 year old borrower that has already been sensibly using credit facilities since age 18? Since credit reference agencies only report on the last 6 years activity they could have just as good a credit rating as anyone else, but will now be lumped in with all of the higher risk "never borrowed before" borrowers (or more likely will get the loan they require somewhere else that doesn't have such age restrictions).

- acceptance rate on 20-25 year old borrowers is reported as 5% currently. Are there any projections for what this would increase to with the introduction of the new "Young" markets?

- seems like a great idea to have a product which can have advertising focussed on "young borrowers" - a segment of the market quite likely to find the P2P Zopa concept appealing.

[Rebtech]

Some initial thoughts:

- what about a 23-24 year old borrower that has already been sensibly using credit facilities since age 18? Since credit reference agencies only report on the last 6 years activity they could have just as good a credit rating as anyone else, but will now be lumped in with all of the higher risk "never borrowed before" borrowers (or more likely will get the loan they require somewhere else that doesn't have such age restrictions).

I don't know whether Zopa will comment on this but it only affects a small proportion, and as you say they can go elsewhere, so maybe we shouldn't be too concerned about it.

- acceptance rate on 20-25 year old borrowers is reported as 5% currently. Are there any projections for what this would increase to with the introduction of the new "Young" markets?

- seems like a great idea to have a product which can have advertising focussed on "young borrowers" - a segment of the market quite likely to find the P2P Zopa concept appealing.

Absolutely.

[grogged]

As I read this, we will now have three money pots - Markets, Listings and the "Young".

To launch this service, Zopa will tie up our money for up to two weeks in advance, with it only being able to attract holding account interest rates.
This doesn't sound attractive when money seems to be lending as soon as it's made available.

With auto-lend only being for markets, this also seems to complicate life for borrowers as well, having to manually juggle funding offers.
This deprives 28% of lending applications from those Lenders who took Zopa's recent advice when it simplified it's offerings...

It may just be me, but potentially annoying 28% of your applicant base on launch day doesn't strike me a bright move if funds are lacking or complex to administer from a lenders persepctive.

And as sl75 pointed out, if your Young and have a credit history, it counts for nothing...

So, at this stage, I'm not seeing too many benifits for me, as a simple market lender...

[edit] spelongs and grammer

This post has been edited by grogged: Jun 26 2008, 12:48 PM

[Paul_Herring]

So, at this stage, I'm not seeing too many benifits for me, as a simple market lender...

But the shorter markets were removed to make things very simple - couldn't you at least give these new things a try?



(On a more serious note, how are these new markets going to be implemented from a lenders point of view so that it /doesn't/ get complicated? People have already raised the issue of the current number of 'pots' being one too many - is this going to add a third?)

[savaroony]

On the subject of more 'pots', I apologise for not being crystal clear.
These two new young markets will appear alongside the existing A*-C markets on your offer screens. Just as you would do for each of the existing markets, you can choose to offer to these markets or not. There is therefore no additional 'pot'.

We also won't be 'annoying' 28% of our applicants as they will continue to be allocated to the A*-C markets until the Young market is fully launched. What would be annoying is to launch the market to borrowers and lenders at the same time, just to have young borrowers told that there aren't enough funds available to supply any loan. We must therefore allow a period for lenders to build liquidty in this market, if they so choose.

[BrianS]

But the shorter markets were removed to make things very simple - couldn't you at least give these new things a try?



(On a more serious note, how are these new markets going to be implemented from a lenders point of view so that it /doesn't/ get complicated? People have already raised the issue of the current number of 'pots' being one too many - is this going to add a third?)

Obviously Zopa have not said anything yet about the 'pots', but I would guess that it will just add another couple of boxes on the lending offers screen, so instead of 8 markets there will be a total of 10.

I hope that is the way it will be implemented, as I don't want to keep another set of funds available just for the Young markets.

[BrianS]

On the subject of more 'pots', I apologise for not being crystal clear.
These two new young markets will appear alongside the existing A*-C markets on your offer screens. Just as you would do for each of the existing markets, you can choose to offer to these markets or not. There is therefore no additional 'pot'.

We also won't be 'annoying' 28% of our applicants as they will continue to be allocated to the A*-C markets until the Young market is fully launched. What would be annoying is to launch the market to borrowers and lenders at the same time, just to have young borrowers told that there aren't enough funds available to supply any loan. We must therefore allow a period for lenders to build liquidty in this market, if they so choose.

I was too slow in composing my message suggesting that that might be the way it worked.

Is the Young market still going to be able to borrow up to £15000. or is it to be capped at a lower amount?

[grogged]

On the subject of more 'pots', I apologise for not being crystal clear.
These two new young markets will appear alongside the existing A*-C markets on your offer screens. Just as you would do for each of the existing markets, you can choose to offer to these markets or not. There is therefore no additional 'pot'.

We also won't be 'annoying' 28% of our applicants as they will continue to be allocated to the A*-C markets until the Young market is fully launched. What would be annoying is to launch the market to borrowers and lenders at the same time, just to have young borrowers told that there aren't enough funds available to supply any loan. We must therefore allow a period for lenders to build liquidty in this market, if they so choose.

I'm glad you cleared that up, since it did seem a bit odd.

Thanks.

[savaroony]

Some initial thoughts:

- what about a 23-24 year old borrower that has already been sensibly using credit facilities since age 18? Since credit reference agencies only report on the last 6 years activity they could have just as good a credit rating as anyone else, but will now be lumped in with all of the higher risk "never borrowed before" borrowers (or more likely will get the loan they require somewhere else that doesn't have such age restrictions).

- acceptance rate on 20-25 year old borrowers is reported as 5% currently. Are there any projections for what this would increase to with the introduction of the new "Young" markets?

- seems like a great idea to have a product which can have advertising focussed on "young borrowers" - a segment of the market quite likely to find the P2P Zopa concept appealing.

Thanks for your thoughts.
- such a young borrower with a good credit history will, as we've seen via our application and acceptance rates so far, tend be very much in the minority, so we're aiming for the larger slice of this market.

- acceptance rate is in fact less than 5% currently but we estimate we'd accept around 25-30% of these applicants in the new markets. This is less than our current acceptance rate in A and A* markets, but better than our current acceptance in C markets.

- precisely!

[savaroony]

Is the Young market still going to be able to borrow up to £15000. or is it to be capped at a lower amount?

Yes - subject to our usual affordability checks, of course.

[sl75]

Being curious about this, I've added an "age" column the the "Borrowers" tab of my spreadsheet, and drawn a graph:



I'm sure someone with even more borrowers than me could do an even better version of this... maybe even Zopa based on ALL borrowers when giving the press release for the actual launch of the new market...!

The youngest borrower I currently have rated 'A' or better is 26 (there may be more of them who simply didn't touch my money, but looks like they are fairly rare breed).

Assuming the new market eventually tracks the 'C' market (or slightly better), 6 of the 13 existing markets borrowers in the 20-25 age range would have got a worse rate on the "Young" market, as they were eligible for a 'B' rate before the introduction of this proposed market. The "gap" to bring 20-25 borrowers up to the level of 25-30 borrowers looks like it will more than compensate for this loss though.

[Lesley]

I'm so glad to hear about this. My niece, who's a great girl, who paid for herself to go through uni wanted to consolidate her loans, but because she doesn't have a mortgage couldn't get one with a building society and one of the banks offered a rate of 19%. I told her all about Zopa, but under the usual system she couldn't borrow. There are loads of young people out there just like her and so it will be good to offer them some help.

[jkh]

I've always thought it was strange that someone who's careful with money and never uses credit cards etc is considered a "bad" risk, whereas someone who's borrowed lots on credit cards would be considered "good". So thumbs up to this, I'm in

[pomma9649]

I've always thought it was strange that someone who's careful with money and never uses credit cards etc is considered a "bad" risk, whereas someone who's borrowed lots on credit cards would be considered "good". So thumbs up to this, I'm in

I'm willing and happy to give it a go and see what happens. There are just as many good young people out there as old ones I'm sure!
Glad to see Zopa taking the initiative to tap into an untapped market...

[CoogarUK]

I have no problem with this 'new' market as long as the credit and fraud checks remain just as tight and am therefore likely to participate by ticking the relevant boxes, making my limited amount offered available to these potential borrowers when it comes on stream.

However, at the same time I can't help dwelling on the reasons given for the withdrawal of the 12, 24 & 48 month markets at the time, i.e. that lenders found everything a bit too complicated!

[pomma9649]

I have no problem with this 'new' market as long as the credit and fraud checks remain just as tight and am therefore likely to participate by ticking the relevant boxes, making my limited amount offered available to these potential borrowers when it comes on stream.

However, at the same time I can't help dwelling on the reasons given for the withdrawal of the 12, 24 & 48 month markets at the time, i.e. that lenders found everything a bit too complicated!

Actually that was Zopa's contention. Most lenders vociferously argued the contrary
I think they'll be happy to get a little bit of complexity, challenge and choice back into the system. Go Easteregg!!

PS: have just been playing with my new loan book and noticed that during the first 25 months when I did nothing and was a member with money just sitting in my holding account and autorelend on I averaged 3 loans a month.
Since I actively intervened last November and "complicated things" I have been averaging 32 loans a month.
So the extra effort and complexity is well worth it from where I stand (sit).

[tibsie]

I have a couple of questions about this point.

Any student loans that a young borrower already has will be considered when we calculate affordability.

Why exactly are student loans considered? And why aren't they considered for people over 25?
They aren't considered when applying for loans elsewhere (as far as I know, I may be wrong.) They certainly don't appear on your credit rating. Mine doesn't.

They way student loans are paid off means that they have very little impact on affordability. The payments are taken before the borrower sees the money so the borrower doesn't have to think about it. Their take home pay is slightly lower than it would be if they didn't have the loan. The repayments aren't based on the loan size but on the borrowers income.

Unless Zopa are on about "student" loans with a bank and not with the SLC then surely they would just be normal loans and considered anyway.

Something about this doesn't seem right to me.

Can anyone shed any light?

[savaroony]

I have a couple of questions about this point.
Why exactly are student loans considered? And why aren't they considered for people over 25?
They aren't considered when applying for loans elsewhere (as far as I know, I may be wrong.) They certainly don't appear on your credit rating. Mine doesn't.

They way student loans are paid off means that they have very little impact on affordability. The payments are taken before the borrower sees the money so the borrower doesn't have to think about it. Their take home pay is slightly lower than it would be if they didn't have the loan. The repayments aren't based on the loan size but on the borrowers income.

Unless Zopa are on about "student" loans with a bank and not with the SLC then surely they would just be normal loans and considered anyway.

Something about this doesn't seem right to me.

Can anyone shed any light?

We've only mentioned student loans specifically here to be clear that we do take all existing outgoings into account when we calculate affordability, just as we normally do for A*-C markets.

[cashsolution]

this is great
a new market
just today picked up my third late payer along with the existing bad debt but all in all not too bad
so
this market has been a missed oportunity
though
are we really going to lend 15K to someone who has never had debt before (other than student loan)
should there be a reduced upper limit?