Fintech news, p2p/online lendingNovember 18, 2016

Peer-to-peer giant Zopa to launch digital bank

By Laura Suter for The Telegraph

Peer-to-peer lender Zopa has announced plans to launch an online-only bank challenging high-street lenders, to offer deposit accounts and overdrafts to customers.

Zopa, Britain’s biggest peer-to-peer website, has applied for a banking licence to launch a “next generation bank”, which will sit alongside its existing investments business.

When launched, the platform says it will offer term-deposit accounts for savers and revolving lines of credit for borrowers, although a spokesman admitted the company does not yet know “exactly what they will look like”.

Jaidev Janardana, chief executive of Zopa, said: “We want to launch a next generation bank to drive greater choice for borrowers, savers and investors, which is good for consumers and good for the economy.”

A spokesman said: “We want to serve a whole new group of customers. We serve investors well and we’d like to serve savers as well.”

By applying for a banking licence Zopa says its customers will receive protection through the Financial Services Compensation Scheme. However, it expects this will only apply to banking customers and not to its peer-to-peer customers.

The lender reached profitability in September this year, after four year of being unprofitable and 11 years of being in business. It has helped to arrange loans or more than £1.8bn during that time.

However, a spokesman for Zopa said it expected to make losses during the bank setup.

“We don’t think we will remain profitable as the banking application requires a lot of capital investment, but we have got a very stable business and have proven we are able to attain profitability. Once we have launched we plan to return to profitability very quickly,” the spokesman said.

It expects the licence approval to take up to two years.

New technology and freedom from banking regulation has meant that peer-to-peer lenders aim to offer better rates of interest to both savers and borrowers than conventional bank accounts.

The platforms pair up savers, who want to lend their money, with small businesses or individuals who need a loan. However, peer-to-peer lending does not offer the protections of a bank, leaving customers exposed to losses.

Low interest rates have pushed more savers to look at peer-to-peer as a way to generate returns on their savings.

Bruce Davis, co-founder of peer-to-peer platform Abundance Investment and former co-founder of Zopa, questioned peer-to-peer lenders moving into banking.

“It is not something we would ever look at. What is missing isn’t more ‘challenger’ banks, it is investment products that are more long term, and exposing people to appropriate risk,” he said.

Zopa was the world’s first peer-to-peer lending platform when it launched in 2005.

More on the topic:

Peer-to-peer giant Zopa trims lending rates after interest rate cut

Zopa aims for enough growth to stop explaining its name

Largest peer-to-peer lenders say they won’t be ready to offer Isas on April 6

First appeared at The Telegraph