The news: Zopa will end its peer-to-peer (P2P) business after 16 years in business, and its banking arm will buy out the P2P retail lending portfolio from investors.
More on this: CEO Jaidev Janardana described negative investor sentiment towards P2P lending and tighter regulations as key factors in the decision.
- The pandemic-induced economic turmoil has led investors to cash in, and several big players firm, Like growth street and Fitzrovia Capital. Janardana felt that this significantly damaged the reputation of the industry.
- Janardana also noted tighter regulation since 2018 that cut margins, which would have also resulted in lower returns for long-term investors.
The initial success of Zopa’s banking business also likely encouraged the fintech to end its P2P operations.
- Zopa drew £675m ($865.6m) in deposits and distributed 150,000 credit cards since obtaining its banking license in December 2019.
- In addition to loans and credit cards, the fintech offers fixed-term savings accounts.
And after? As Zopa completes its evolution into a neobank, it is entering a competitive landscape in which other UK players are awash with funds and have a wider customer base, but its near-term profitability indicates its differentiated focus is paying off.
- Although substantial, Zopa October £225 million ($228.5 million) is inferior to Starling’s $376 million in March and eclipsed by Revolut’s $800 million in July.
- by Zopa UK customer base of 500,000 also trails behind the likes of Monzo (5.8 million), Revolut (3.1 million) and Starling (1.9 million), through an Insider Intelligence 2021 forecast.
- Still, Zopa says it’s approaching profitability by the end of the year, indicating that its focus on savings accounts, which creates the capital to fund its personal and auto loan operations, is carrying its fruits. Loans generate better returns than checking accounts, which make up the bulk of the clientele of other major UK neobanks.
- And as Zopa prepares for an IPO in late 2022, its commercial viability sets it apart from its competitors, and backers could flock to invest like others. neobanks struggling to achieve profitability.