Bank Regulation

Zopa Secures UK Banking License

Zopa, the United Kingdom-based peer-to-peer (P2P) lender, has reached its latest milestone and received its banking license as it takes on traditional banks, the Financial Times reported.

“We never thought we would be launching in such an extraordinary set of circumstances, but we believe that, if anything, these circumstances make the proposition even more relevant,” Jaidev Janardana, Zopa’s CEO, told the newspaper.

He said this recent development is “a good validation of our strategy.”

Now, in addition to car and personal loans on behalf of retail and institutional investors, Zopa will introduce savings accounts this week, to be followed by the addition of credit cards later this year.

In December, PYMNTS reported Zopa expected to receive £130 million ($1.67 million) to become a challenger bank. The news of the funding it had struggled for came days before its conditional banking license was set to expire.  Zopa received those funds from a group linked to IAG Capital Partners, a U.S.-based fund, and its U.K. investment vehicle, Silverstripe.

At the time, Zopa said it raised £60 million ($67.7 million) from new and existing investors in two funding rounds since applying for the banking license in 2016, and it added several former banking executives to create a board.

Launched in 2005, Zopa is considered one of the world’s first P2P lenders — and in late 2018, it became the first P2P lender to be granted a conditional banking license by the Financial Conduct Authority (FCA), with plans for its digital bank offering to include a fixed-term savings product, a credit card and a money management app, the report said.

Since COVID-19, non-bank lenders have been hurting as capital markets became less available and retail investors tried to withdraw their cash from the P2P sector, the Times reported.

As it becomes a full bank, Zopa follows a path familiar to Capital One, where Janardana as well as Zopa’s chief financial officer and chief risk officer once worked, the Times reported.

“Capital One was one of the earlier disrupters,” Janardana said. “It’s been a good school for people.”

Still, the CEO said Zopa placed a priority on developing and owning its own technology.

The company will target younger borrowers with digital features that are common with debit cards but remain rare in the credit card market, the Times reported.

In addition, it will seek older customers with high credit scores by offering interest rates 20 percent lower than U.K. banks. But it plans to avoid the interest-free introductory deals common among the nation’s credit card market.

As savings deposits increased by £16.2bn ($20.2 billion) in April, more than five times higher than the same month in 2019, Janardana said Zopa would offer “competitive” interest rates.

He said the bank hopes to break even within a year, but it will depend on the economic recovery.

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