Zopa to launch a bank

News that Zopa, which pioneered peer-to-peer lending with its launch in 2005, plans to launch a next generation, or neo-bank in early 2018 has caused quite a stir.

In a press release issued yesterday (16 Nov), Zopa said that the bank will sit alongside the existing P2P business and intends to offer FSCS protected deposit accounts and revolving credit products (overdrafts) to supplement the existing portfolio.

The Regulatory application process is in its early stages and is expected to take 15-24 months.

Questions abound about the opportunities and challenges this development creates, not just for Zopa, but for the P2P industry as a whole.

• If offering overdrafts, how will Zopa price for un-drawn committed funds? Non-utilisation is one of the High Street banks' biggest headaches and is a contributory factor in a number of facilities being withdrawn or reduced.  If there is no interest income, how will they pay the investors that are providing the standby capital?
• Deposits will be covered by the FSCS, but investments on the P2P side won't be - unless Zopa knows something the rest of us don't!  Making the difference clear to investors could be a challenge.
• Will the deposits support the P2P book or just the overdrafts?
• Will Zopa leverage the deposits to increase its lending capacity like the banks do - and what does this mean for capital adequacy requirements?

I have no doubt that Giles Andrews and his team are there and back again on these points and the answers will become clear over the months ahead.

Jaidev Janardana, CEO of Zopa said: “We have built a profitable, scalable and viable business. Yet we’ve only just begun. 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”.

We understand that there are no plans for branches and it is, therefore, likely that the neo-banks such as Atom, Starling and Monzo will be looking at this more cautiously than their High Street rivals. Will Zopa help establish the market for neo-banks or swallow up what nascent demand exists at present? Or should it be the High Street banks that are nervous? Zopa could pull away significant amounts of cheap capital in the way of deposits if it gets its offer right?

These are undoubtedly exciting times and a P2P provider launching a bank is the next significant development in the maturation of the industry. Two years ago, I speculated whether seeking a banking license was the logical path for all peer-to-peer lenders as part of their regulatory and compliance framework: it remains to be seen whether this is the start of a trend or the exception to the rule. One wonders what the banks reaction will be. Will they be more motivated to offer P2P themselves? Are partnerships with P2P providers the end of the story for them?

Questions, questions, questions, but all ones filled with opportunity. We'll endeavour to find some of the answers and provide updates as we find them.