ZoPA is an online peer-to-peer Investment and Loan service.  ZoPA stands for Zone of Possible Agreement and allows people lend or borrow from other people in the system.

In a way it shares some characteristics often exhibited by a buying club, but it truly delivers much more than that.  A bank's primary function is to serve as a middle man in a two part transaction. 

Part one brings a person to the bank with money they wish to keep safely and keep safely away from inflation.  The Bank as the middle man takes the money, holds it safe, and pays interest to the depositor.

The bank in a separate transaction then loans money to borrowers or sometimes invests money in businesses or other opportunities.  These loans and investments returns a premium on the investment, which the bank as a business, uses to cover its overhead, pay its own owners and to cover the expense of depositors interest.

That is a terrific business model and has stood the test of time for a couple hundred years now.  The Internet has broken down many barriers in banking and now Zopa offers a new barrier that might be broken down.  As Zopa allows essentially an online investment to be made by one person in a borrower or business seeking funds.  The online system allows the borrower and the depositor/lender to deal directly with each other.

Since there is no banking overhead to pay and no bank owner profits to be gleamed, the two parties to the transaction (borrower and lender) can get a better deal.

Example

depositor deposits money and receives 5% interest per annum

Bank Loans money and charges 10% interest per annum

Bank pockets 5% interest on the loan of which 50% goes to overhead and 50% is profits.

Zopa example

depositor goes through Zopa to identify a borrower provides funds and receives a return of 6.5% interest per annum and pays Zopa 0.5% on the total amount yearly

Borrower pays 6.5% instead of 10% and pays a one time fee on the amount borrowed of 0.5%

Zopa receives a .5% fee on the amount of the loan from the borrower and charges the lender a .5% service fee.

Zopa also makes money by providing loan insurance to lenders if desired.  Members to this Zopa group must have a confirmable identify, a verifiable credit history, a good track record paying debt and a minimum annual income.  They can not have maxed out credit cards, high levels of unsecured debts, a poor debt history and a habit of lying on application forms.