Zopa Group reported broadly flat pre-tax losses of £18.1m for 2019, as increased earnings from its peer-to-peer lending platform were offset by heavy investment into its new bank.
Zopa’s P2P platform saw its profits tick up to £575,000 for the year ended 31 December 2018, compared to £145,000 the previous year.
Fee and commission income – which is received from acquiring and servicing loans – rose to £46.2m from £38.2m, which was “driven by changes in product mix and pricing”.
Meanwhile, Zopa’s digital bank – which launched this year – posted a pre-tax loss of £18.4m in 2019, up from a pre-tax loss of £14.4m in 2018, according to documents filed with Companies House.
Zopa Bank received £15m in 2019 from its parent company, which it said allowed it to grow lending, develop its core technology, obtain its banking licence (with restrictions) and grow its car loan portfolio to £13.9m.
“As the company developed its operating capabilities to prepare for full launch it incurred higher costs, relating mostly to higher employee numbers and IT costs,” Zopa Bank said.
Zopa Group revenues rose to £46.7m in 2019 from £38.55m in 2018, while it increased its loans and advances to customers to £16.5m from £7.6m over the period.
Zopa Group’s latest annual results also confirmed plans to begin funding personal loans “at scale from its own balance sheet”, alongside P2P retail and institutional investors.
Balance sheet lending would mean a move away from the traditional P2P model of connecting investors and borrowers, which could involve using Zopa Bank’s deposits to benefit from a lower cost of funds.
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The financial reports also revealed the impact of the pandemic on the group and its subsidiaries.
Zopa Group said it expects to see a higher level of credit defaults on lending assets on its balance sheet than previously forecasted. However, the financial impact is expected to be relatively limited as the existing portfolio amounts to only £14m of secured car finance loans.
Zopa’s P2P business said that it expects to see a “significant increase in borrower defaults” due to the pandemic, resulting in investors making a loss or not achieving their targeting returns.
It said that it had already seen a significant increase in withdrawal requests via secondary loan sales, leading to reduced funds available for the P2P platform to continue lending.
This is combined with tightening of credit and lower demand for loans, which has further reduced ongoing lending volumes, Zopa said.
It warned that the ongoing impacts of the pandemic could lead to a prolonged credit downturn, staff shortages and hinder its ability to raise new capital in the future.
In December 2019, Zopa became the first P2P consumer lender to pass the £5bn cumulative lending milestone.