Meet UK’s new unicorn: Neobank Zopa secures €260.76M in pre-IPO round led by SoftBank

London-based Zopa, a digital bank that offers peer-to-peer loans with low rates, flexible terms, and no early repayment fees, announced that it has raised £220M (approx €260.76M) in a fresh round of funding to drive its next phase of growth. This is their largest fundraising to date, claims Zopa.

With this investment, the company has earned the status of a unicorn with a post-money valuation of $1B (approx €860.5M), according to a report from Yahoo! Finance.

The proceeds from this round will help the company to support more UK consumers to improve their financial health and to access borrowing and saving products.

Investors

The funding round was led by Softbank Vision Fund 2 supported by a number of existing investors including Silverstripe, Northzone, and Augmentum.

Chief executive Jaidev Janardana tells Financial Times, “For us, the capital we’re looking to raise is to fund the growth of the balance sheet. The capital raised also means we can be more flexible in our timing of an initial public offering.”

Janardana adds, “We think we are ready (to list), but one thing I would like to have is a track record of profitability before going public. The decision is to list in London, where investors look for a combination of profitability, strong unit economics, and growth.” 

The earliest date for an IPO is the fourth quarter of 2022.

An app to help make managing your money stress-free

Founded in 2005 by Richard Duvall, James Alexander, Giles Andrews, David Nicholson, and Tim Parlett, Zopa is a P2P money lending service that allows lenders and borrowers to deal directly with one another, cutting out banks as middlemen.

Zopa works by first categorising borrower credit grades through ratings. Lenders then make offers depending on the required amount and time period for persons with a certain credit grade. Finally,  borrowers can agree on the aggregate offered rate.

Zopa takes on responsibilities such as distributing money between parties, completing the legal paperwork, performing borrower identity/credit checks, and employing a collections agency that chases missed payments for the lender.

Zopa also reduces the risk for lenders by enforcing monthly direct debit repayment, making borrowers sign a legal contract, and allowing lenders to lend little amounts to individual borrowers (for example, someone lending a £1000 would have their money spread across say, 100 borrowers). Borrowers can take out loans between £1,000 and £25,000.

Zopa makes money by charging a fixed fee for borrowers and a 1 per cent annual fee for lenders.

Securing the UK banking license

To offer customers a broader set of personal finance products, Janardana says, “back in 2016, we first announced our plan to launch a fully regulated bank that would provide a different banking proposition for UK consumers. A proposition built on fairness and which provides simple, transparent products.” The company had secured £44M in funding for the launch of its digital challenger bank.

Zopa was awarded interim banking licenses by the UK financial regulators, the FCA and PRA, in December 2018. Soon after getting a full banking license, the bank was launched in June 2020.

Zopa’s bank offers FSCS protected deposit accounts, credit cards, and a money management app that makes use of data made available by the introduction of Open Banking.

Janardana adds, “We were able to build on our 16-year heritage of award-winning loan products in order to develop credit cards and savings which better meet customer needs, and we launched these shortly after getting our bank license in June 2020. The initial success of these products speaks for itself. Just over a year on from fully launching our bank, we’ve attracted £675M in deposits for our fixed savings accounts and issued 150,000 British Bank credit cards, making us a top 10 credit card issuer.”

The company has already hit over £6B in disbursed loans this year and is currently lending over £100M per year in car loans.

Zopa has also partnered with ClearScore to offer a Zopa pre-approved credit card to previously declined customers. An integration with CreditLadder has also made it possible for renters to improve their credit scores by reporting their rental payments. Moreover, the company has launched utility switching services to help customers save money and increase their disposable income – a key factor in improving credit worthiness.

“We are focused on building a sustainable, profitable business model which works for our customers and our shareholders. This is close to becoming a reality as we are on track to hit profitability within the next 10 weeks, making Zopa one of the fastest digital banks in the UK to do so, just 18 months after gaining our full bank licence,” says Janardana.