Zopa Bank achieves profitability within 2 years of receiving its full banking licence

Challenger bank and former peer-to-peer lender Zopa has reported its first profit less than two years after gaining a full banking licence.

The financial technology firm has followed in the footsteps of Starling and OakNorth to become the latest – and one of the few – British digital banks to have broken even.

Having only been granted a full banking licence in the summer of 2020 as it sought to diversify its services and compete with larger financial institutions, this also makes it one of the quickest online banks to reach profitability.

Select Few: Zopa Bank has followed in the footsteps of Starling and OakNorth to become the latest – and one of the few – British digital banks to have broken even

Zopa added that it expects to remain profitable going forward while continuing its rapid growth, which has already seen it lend over £1billion, gain £1billion in deposits and become one of Britain’s largest credit card lenders.

Before its transition into banking, the company helped pioneer peer-to-peer lending, a service that allows borrowers to obtain money directly from other people or businesses without going through a financial institution.

A decade after being started by former employees of the defunct internet bank Egg, it had lent out its first £1billion to customers, and two years later, it became the first P2P platform in the UK to lend more than £2billion to customers.

P2P was billed as essentially cutting the middleman out of the lending equation – AKA, the banks.

In more recent times, though, the P2P industry has come under increasing scrutiny from regulators like the Financial Conduct Authority following the collapse of prominent lenders, such as Funding Secure and Lendy.

The FCA has labelled the practice a ‘high-risk’ investment alongside mini-bonds and cryptocurrencies and finished a consultation on their promotion a fortnight ago.

Amid this environment, Zopa shut down its peer-to-peer lending operations in December and handed back money to around 60,000 P2P investors, who saw their loans purchased at face value.

Leader: ‘Hitting profitability in just 21 months is a testament to our unique model that meets customer needs by focusing on how they borrow and save,’ said Zopa CEO Jaidev Janardana

In a statement, the firm said: ‘Sadly, over the last few years, customer trust in P2P investing has been damaged by a small number of businesses whose approach led to material losses for customers investing in those platforms.

‘Linked to this, the changing regulation in the sector has made it challenging to grow and remain commercially viable.’

The group is now focusing on growing its banking business, whose products range from personal loans to car finance and fixed-rate savings accounts, and launching an initial public offering later this year.

To help achieve this, the group raised £220million from investors in a funding round that was led by Japanese conglomerate Softbank and included hedge funds Davidson Kempner and Chimera Capital.

Following this fundraise, Zopa became the newest British fintech giant to achieve ‘unicorn’ status – a privately-held company worth at least $1billion. 

Jaidev Janardana, the group’s chief executive, said: ‘The past year has been a highly successful one for Zopa as we’ve exceeded our targets across new and existing products and raised $300million led by Softbank to fuel our accelerated growth.

‘Hitting profitability in just 21 months is a testament to our unique model that meets customer needs by focusing on how they borrow and save – the two things with the most impact on finances.

‘Today’s news makes Zopa one of the fastest digital banks to achieve profitability ever and reinforces our thesis on the importance of sustainable growth as a catalyst for accelerated product and market expansion.’

This post first appeared on Dailymail.co.uk