Giles Andrews: How I beat the system with my own bank

Many savers would be happy enough with a 7.5% annual return and that's the average earned by investors using Zopa, the world's first peer-to-peer loan website.

David Nicholson came up with the idea in 2004 as a cross between "eBay and the corporate bond market", current CEO Giles Andrews recalls. Nicholson had quit his job at Egg financial services a year earlier, along with two colleagues. He "saw how the bond market transformed corporate finance", says Giles. It allowed investors to compete with banks and lowered borrowing costs for companies. "The idea was to use personal credit checks to do the same for consumer banking." Meanwhile, eBay the biggest online marketplace at the time made him realise that lenders could bid for the interest rate they would charge borrowers.

But the pair needed money and drafted in Giles, who they had met on an MBA course. "I had sold companies, acted as an angel investor and worked as a consultancy to small businesses," says Giles. But he was so impressed with Zopa that he decided to work for no fee. By summer 2004 they had found a venture capitalist willing to stump up the £6m required for software development.

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Next, they had to clear a number of regulatory and commercial hurdles. "Being the first to do something sounds good but it also means that you have to cover a lot of uncharted territory." Being the first firm of their type, they weren't sure which regulations applied to them. "It was difficult because we didn't want to fall foul of the rules further down the line." Another challenge was the banks. "We were in the strange position of being both their customer and their competition." Zopa would be generating a lot of transactions and using banks to store and transfer money. Yet ultimately it also aimed to take their potential customers. "Most of the main clearing houses said no pretty quickly, but luckily RBS was willing to give us a chance."

In spring 2005 the firm's launch was covered "by most of the financial press" as pundits declared the beginning of a consumer finance revolution. But "having a story in the FT doesn't mean customers start signing up". Unable to afford television advertising, they relied instead on word of mouth and price-comparison websites. "It was slow because they wanted to see proof that we worked."

But gradually the idea gained traction. "I think people like the idea of collaborating online to beat the system." The site also offers investors and borrowers better rates than they would get from the banks. With copycat competitors emerging, the team decided to go for scale by launching in America. It didn't go well. The regulatory landscape was more complicated and limited their market. Meanwhile, the financial crisis took out a lot of their customers. In 2008 Zopa pulled out of the US and refocused on Britain. "Our British business was more developed and was not really affected by the crisis."

That was a sound move. Zopa is now processing £5m worth of loans a month and recently made its first profit. With peer-to-peer lending becoming more recognised, Giles, now 45, is optimistic. "The UK personal loans market is worth £10bn the potential is enormous."