The Startups 20: Zopa

The P2P lending powerhouse that’s growing up fast and has lent more than £5bn to over 470,000 UK consumers to date

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The Zopa story

Not many companies were made by the 2008 financial crisis, but Zopa’s fortunes were transformed by the global crash that practically destroyed people’s trust in the mainstream banking sector.

The company was founded in 2005, but its roots go a bit deeper. The five founders met when they were working at Egg Bank, which made waves when it launched as the UK’s first internet bank in 1998.

Zopa’s big idea was peer-to-peer lending – basically people looking for loans would be matched with investors looking for a decent return on the money they put in, with the money investors put in spread between different loans to reduce risk.

That became a much more attractive proposition in 2008, when savings rates were slashed and people realised both how vulnerable big banks are and just how reckless they’d been with other people’s money.

All of a sudden, people were open to lending and investing via a non-bank financial platform that offered far better rates than anything in the mainstream market.

And, from there, Zopa has grown massively; it now has over 500 employees and, as of May 2020, has lent over £5bn to over 470,000 UK consumers.

This means it’s gone from an upstart challenger to an established part of the UK financial scene. It even recently got a proper UK banking licence (more on that later), and has much bigger ambitions for the future.

Based on what it’s achieved so far, few would bet against Zopa taking another giant leap.

Why we chose Zopa as one of the Startups 20

Here at Startups, we love trendsetters, innovators, and risk takers, especially when they’re trying to genuinely make people’s lives better. As the world’s first peer-to-peer lending platform, Zopa ticks that box with aplomb, and has given countless investors strong, stable returns, as well as providing affordable finance to nearly half a million UK consumers.

What really stands out though is the way they’ve done this – when you’re dealing with people’s hard-earned money, trust is absolutely king and this value runs right the way through Zopa.

The platform is very careful about who it lends money to, with only 20% of loan applications approved. This reflects its moderate approach to risk, with returns aiming for a stable middle of the road between low risk, low return savings accounts and the volatility of the stock market. So far, it seems to be working, with returns averaging 5%.

And there’s been no massive marketing push, Zopa is still not a household name but is loved by its users, something demonstrated by a seriously impressive 4.9 trustpilot rating from nearly 15,000 reviews.

Having laid the groundwork, it’s now ready for its biggest challenge yet – becoming a proper bank.

Zopa in 2020

2020 could well go down as one of the most significant years in Zopa’s history – with the aid of a £140m cash injection from US private investment firm IAG Capital, it secured a UK banking license.

Essentially it wants to become a bank and offer savings accounts and credit cards alongside its strong P2P lending business, placing it in direct competition with not only the big banks but also other challenger banks like Monzo, Revolut and Starling.

So far, Zopa has launched a fix-term savings account and is preparing to launch a credit card which incentivises prompt repayment through lower interest rates.

Given the company’s expertise in lending, it’s an obvious expansion area and a great opportunity for Zopa to differentiate itself from rivals, with some challenger banks reluctant to launch credit cards due to the complexities involved.

All this has the potential to supercharge Zopa’s revenue, as it will be able to keep the interest paid on things like credit cards and standard car loans instead of passing it on to investors in the P2P model. Of course that also means higher risk, as the bank would also absorb any losses on these products.

Given the huge financial difference between the models, it seems likely that the eventual goal is to move away from P2P lending entirely, which would be a dramatic departure for the world’s first peer-to-peer lender.

It’s a bold ambition but with over a decade of lending experience, strong financial backing, and a veteran leadership team in place, don’t be surprised if Zopa’s next few years make the previous 15 look like a training run.

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Written by:
Alec is Startups’ resident expert on politics and finance. He’s provided live updates on the budget, written guides on investing and property development, and demystified topics like corporation tax, accounting software, and invoice discounting. Before joining, he worked in the media for over a decade, conducting media analysis at Kantar Media and YouGov, and writing a wide variety of freelance pieces.
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