Zopa Bank: Surviving recessions, battling digital banks and whether it will float in London this year
Zopa is a firm that has weathered economic crises before. When the global financial crisis swept through the economy in 2008, the London-headquartered fintech was a little-known but early-moving peer-to-peer (p2p) lending shop connecting borrowers with willing investors.
Banks had unsurprisingly reined in loans and hauled up the barricades, leaving consumers scrambling for cash through other means. As a result, hordes turned to firms like Zopa, which emerged from the crisis with only a small dip in returns and a newly expanded customer base.
Since then though, Zopa has gone through something of a transformation. The digital lender, which won a full banking license in 2020, boasts a customer base north of 850,000 and last week announced it had sailed past £3bn worth of deposits with a loan book worth £2bn.
Looking out at 2023, Zopa is now braced for another crisis round the corner, its chief Jaidev Janardana told City A.M. in an exclusive interview.
The digital bank, which wound down its p2p operation in 2021, is expecting revenues for 2022 to have surged by around 130 per cent from the £70.5m it bagged in 2021, Janardana tells City A.M.
He claims the performance is down to its goal to get dormant ‘zombie money’ in customers’ accounts working harder, with its ‘Smart Saver’ accounts raking in over £1bn deposits in 11 months with an offer of up to 3.26 per cent annual returns.
And Zopa is mulling new moves for 2023. Janardana says the lender is exploring a push into the small business lending space and is waiting for the right partner to come along before it throws itself into the market.
“I continue to think of that as a good opportunity, and if there were a company that would come through where we could partner with them or do something more strategic, that’s something that we would be open to doing in 2023,” he said.
A push into the business space would come amid growing competition in its consumer offer. Digital banks from Starling to JP Morgan’s Chase are rapidly hiking rates on savings accounts in a bid to tempt in returns-hungry customers.
But Janardana says competition is only a good thing for consumers as the cost of living bites.
“For those of us who have been more responsible coming into this into this uncertain period… I think it can be a moment of opportunity to grow and actually provide customers better alternatives than the incumbents are able to do,” he says.
Despite the bumper growth, it’s not been all smooth sailing for Zopa over the past 12 months.
The firm announced in April it had hit profitability for the first time, but Janardana reveals those have been largely choked off as it braces for a potential wave of defaults to come.
“We have been mostly running the business at about breakeven,” he says. “We had to take an outlook on 2023 and beyond and provide for expected losses at the end of 2022. The UK economic outlook is pretty bleak. So we’ll have to look into what that looks like.”
He expects to have clearer answers in the next six weeks as the bank closes its accounts for the year and the outlook for the year becomes clearer.
To list or not to list?
The economic slump has also put the stoppers on some of Zopa’s much anticipated growth plans.
The bank’s IPO had long been slated for 2022, but it was forced to publicly row back on the plans as volatility shuttered the flotation market and triggered sharp falls for fintech valuations globally.
“I don’t feel that the current UK economic environment is one where businesses such as us… would want to go public at this juncture,” Janardana said.
The bank will wait for a period of “more certainty and clarity,” which “hopefully will come towards the end of this year,” he says.
Despite its London roots and UK customer base, the City still has not won the unconditional commitment of the firm.
Policy makers and regulators have been scrambling to boost London’s standing as a global hub for tech and fintech IPOs with a swathe of reforms and reviews, but the efforts are yet to yield results. The few such firms to float in the City have been beset by troubles and weathered sharp falls in valuations after IPO.
Janardana says the recent failures point to an investor base that is still not up to scratch in the UK.
“I think a lot of investors here expect dividend payments which is not consistent with our growth profile and the ambition we have,” he says. “While we expect to be profitable, we want to reinvest those profits into further growth in the business.”
For now, the location for the eventual IPO remains up in the air and back of mind as a recession looms. But Janardana and his team have plenty of work to do in the meantime.