ZOPA’S long-awaited banking licence has finally come through, but what does this mean for the wider peer-to-peer lending sector?
The world’s oldest P2P lender has, in some ways, gone full circle with its plans to launch a bank.
It was founded by a team from Egg Banking back in 2005, including now-Chairman Giles Andrews (pictured), to create an eBay for money.
Having dominated the P2P consumer lending sector, it is set to disrupt the savings and credit card market.
But as it goes mainstream, will Zopa be able to hold on to its alternative finance and P2P roots?
Bruce Davis, managing director of ethical crowd bond platform Abundance, thinks so.
He was also part of the team which worked on the original Zopa idea, providing much of the consumer research and branding development.
“P2P was the start of the alternative finance revolution but it certainly isn’t and shouldn’t be the end,” he said.
“If Zopa can bring their innovative thinking and technology to banking then that has to be good for customers and good for the market.”
Other P2P lenders have also welcomed the move.
John Goodall, chief executive of P2P property lender Landbay, said it would be “positive for the broader sector,” while Lee Birkett, founder of JustUs, described Zopa as the “fintech daddy.”
But not everyone has been as effusive.
Kevin Allen, chief risk officer at The Money Platform, used a LinkedIn and Twitter post to describe Zopa’s imminent bank launch as “the beginning of the end for P2P.”
“For 13 years as one of early lenders in the platform I’ve enjoyed returns far higher than Financial Services Compensation Scheme-protected savings deposits,” he said.
“I took a considered risk and was rewarded. All that will happen now is that lender returns will drop, and the owners of the platform will get rich.”
There are a number of reasons that Zopa’s P2P investors could potentially see their returns drop, such as the bank’s higher cost of funding trickling across to the P2P side of the business.
Zopa has denied this would be the case and said its bank launch won’t impact its P2P rates.
Ultimately, Zopa’s success will come down to its product offering, and LendIt and Lend Academy founder Peter Renton said Zopa has a keen and ready customer base unlike other challenger banks.
“Zopa not only has hundreds of thousands of borrowers and almost 80,000 existing investors, they have an experienced team and a brand that has been built over 13 years,” he said.
“This will give them some unique advantages.
“For Zopa Bank to succeed they will have to execute well. But as chief executive Jaidev Janardana has pointed out numerous times before, the large banks continue to do a poor job when it comes to customer satisfaction.
“They succeed despite their poorly designed products. I expect Zopa will launch products that prove popular with consumers and by keeping their eye firmly on customer satisfaction I will be surprised if Zopa Bank does not do well.”
Zopa popped up at the right time to spot a gap in the market for P2P. Returns on savings were dire and individuals were having a tough time accessing credit. It also didn’t have many rivals in the early days.
Now there are plenty of challenger banks from Monzo to Starling, so this time around it will be its reputation, brand and products that carry it, rather than necessity.