Zopa first launched in 2005 as a peer-to-peer lending site. Since then, it has lent over £1.8 billion and helped its lenders earn more than £75m of interest.
The company says it has “built a profitable, scalable and viable business”, but now, subject to regulatory approval, it wants to “launch a next generation bank to complement our existing peer-to-peer products.”
Last week Zopa announced that it has raised up to £32 million of investment and secured two new major investors; Wadhawan Global Capital (WGC), a leading Indian financial services group, and Northzone, a European Venture Capital firm who have also backed the likes of Spotify and iZettle.
The two firms join existing investors Arrowgrass, Augmentum Capital, Bessemer Venture Partners and Runa Capital. Kapil Wadhawan, the Chairman of WGC, is set to join Zopa’s board.
Although Zopa will continue to offer peer-to-peer lending, the firm say they want to offer “new and innovative savings and borrowing accounts”, including FSCS protected deposit accounts to savers and overdraft alternatives to borrowers.
Rumour has it that Zopa will also look to provide personal loans, car financing and credit cards for people looking to borrow.
First, Zopa needs to secure the necessary regulatory approval, which the company estimates will take 15-24 months.
In September last year, Zopa reported that it had was now profitable, and followed up the news with a record lending month, facilitating £75m of loans.
Zopa’s CEO Jaidev Janardana says that the new funds will “give us additional resources to continue our growth, support the launch of our next generation bank, and bring our award-winning products to even more people in the UK.”
Meanwhile Jeppe Pink, a partner at Northzone said he believes that “Zopa is a blueprint of what the modern, technology-first bank will, and should look like, based on transparency and customer service. Zopa is already a trailblazer in this market, and is in a strong position to build on this.”
The Rise Of “Next Generation” or “Challenger” Banks
Next Generation banks, also known as “Challenger banks”, have burst onto the scene in recent years. 4 of the most well-known challenger banks are Tandem, Starling, Atom, and Monzo. You can read our review of these 4 “challengers” here.
The banks are targeted at the millennial generation, but will appeal to anybody who wants to benefit from services such as real-time balances, text and instant messaging capabilities, contactless payments, and access to extra products and services.
These features are made possible thanks to challenger banks’s use of Application Programming Interfaces (APIs), which are able to “plug in” to the same data feeds used by the big banks to get real-time information about customer’s funds.
For example, the moment a purchase is made using a Monzo card, or via contactless payment, a user can choose to receive an instant text notification telling them their new balance instantly, which is handy for all sorts of reasons, not least managing an overdraft and knowing exactly what your available funds are.
Most of the challenger banks are well funded and competition is intensifying. All of the challenger banks are racing to uncover new products and services to attract new customers; Starling bank, for example, recently ran a hackathon at Google Campus to let developers loose on their APIs and see what new products they could come up with.
Now, it looks like there’s a new player in town – Zopa. Zopa are currently playing catch-up, with a possible 2-year wait before they can even obtain a full banking license, but the delay could mean that when they do launch, they will be heavily incentivising customers to join.
Challenger, or Next Generation banking, is a space well worth following if you are looking to benefit from the best new financial products and services.