Zopa, the London-fintech credited with inventing peer-to-peer lending, is launching a challenger bank.
The company said in a press release on Wednesday that the bank will sit alongside its peer-to-peer lending business, set up in 2005, but says it will “enhance their market-leading peer-to-peer business.” Investors on the platform will be offered savings and deposit services from the new bank, while those looking to borrow will be offered overdrafts as an alternative.
Zopa’s online peer-to-peer platform lets people make unsecured consumer loans to borrowers online. The platform has lent over £1.75 billion ($2.14 billion) across its website since inception.
Zopa has not yet been licensed to set up a bank but is applying to regulators the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA).
CEO Jaidev Janardana says in a release announcing the move: “The regulatory authorities in the UK have created an environment that encourages innovation, the adoption of new technologies and an increase in competition in the banking sector.
“Zopa has a history of creating innovative retail-facing financial services, driving consumer choice and transparency. We are responding to the positive regulatory environment and building on our experience to bring yet more choice to the market.”
Zopa is entering a crowded market with its plans to launch a high street bank targeting retail deposits. Several digital only challenger banks have announced plans to launch in the next year or so, such as Monzo, Atom, Starling, and Tandem.
From a business perspective, Zopa says the move will allow it to diversify its funding base, leaving it less exposed to cyclical downturns in peer-to-peer lending. Speaking at an industry conference earlier in the year Janardana called 2016 “a very useful speed bump,” following a slowdown in the sector in the second quarter of the year.
Zopa reached profitability in September and says in its release announcing the new bank that it had a record month in October. A recent Moody’s report on Zopa’s loans found that, from 2013 onwards, “the proportion of riskier lending increased at the same time that Zopa’s volume was increasing dramatically” with more loans for things like debt consolidation.
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