Zopa, one of the UK’s largest peer-to-peer (P2P) lending firms, has confirmed it is to apply for a banking licence. Not content with being part of one of the fastest growing business sectors in the country, it is now branching out and seeking to compete directly with the high-street giants.

Although a P2P lending arrangement is very different from a savings account, and no P2P firm should ever suggest that lending money via P2P is in any way equivalent to saving, it is certainly the case that a number of investors have been attracted to P2P as the rates of return on their money are likely to exceed those available in savings accounts.

Now the firm has taken the idea of competing with high-street banks to another level. Zopa says its online-only bank will offer deposit accounts and overdrafts.

Deposits made with Zopa’s bank will be covered up to £75,000 by the Financial Services Compensation Scheme (FSCS). The fact that there is no recourse to the FSCS for clients if things go wrong is currently one of the major downsides to P2P lending.

Zopa already has an agreement with Metro Bank in place, under which the challenger bank can lend its funds on the Zopa platform.

Jaidev Janardana, chief executive of Zopa, said:

“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.
“We have lent over £1.8 billion and inspired a £100 billion global industry.”

“We want to launch a next generation bank to drive greater choice for borrowers, savers and investors, which is good for consumers and good for the economy.”

The firm anticipates that it could take two years to receive approval from the regulators, the Financial Conduct Authority and the Prudential Regulation Authority, to operate a bank. A company spokesperson went on to say that he expected Zopa to suffer losses while the banking operation was being set up, saying:

“We don’t think we will remain profitable as the banking application requires a lot of capital investment, but we have got a very stable business and have proven we are able to attain profitability. Once we have launched we plan to return to profitability very quickly.”

Zopa announced it had returned to profitability in September 2016, following a four-year period of losses.

A former senior manager at Zopa was sceptical about the idea however. Bruce Davis, a co-founder of Zopa who went on to form P2P firm Abundance Investment, said:

“It is not something we would ever look at. What is missing isn’t more ‘challenger’ banks, it is investment products that are more long term, and exposing people to appropriate risk.”

It remains to be seen whether other banks will follow Zopa’s lead and enter the banking sector.

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