Zopa, the world’s oldest P2P lending platform, is in a race against time to secure an investment of between £100m and £150m or face losing its banking licence, Financial News has revealed.
The firm has now turned to US banking giant for help as it looks to raise the new capital in just 2 weeks – or risk failing in its bid to become a bank
- Zopa has been in the process of trying to become a bank since 2016
- It was granted a ‘licence with restrictions’ last December
- This limited it to total deposits of £50,000 to test its systems
- It has now been revealed it requires more money to meet BofE requirements
Launched in 2005, Zopa uses technology to match consumer borrowers with a diverse range of investors on its proprietary platform. The business announced it would pursue a banking licence in November 2016, and closed a £60m fundraising from new and existing investors in November 2018, following which it was granted a banking licence with restrictions in December last year.
It is now known that the business must land a further investment of between £100m and £150m by December 3 in order to meet regulatory requirements linked to the launch of its bank.
With the deadline just over 2 weeks away, Zopa has hired Bank of America Merrill Lynch to help it secure the money although the investment bank has so far declined to comment.
The P2P lending business has been instructed that it must top up its reserves of regulatory capital before it is able to fully launch its bank. Guidance from the UK regulator states that failure to do so may result in the removal of Zopa’s authorisation. Unfortunately Zopa’s financing pressure has been compounded by news that Arrowgrass Capital Partners, a shareholder in the company, announced in September it would close down and return capital to investors. The closure means Arrowgrass is now looking to sell its minority stake in the P2P lending business.
In addition to securing the £100m to £150m investment, Zopa must also demonstrate to regulators that the technology underpinning its bank is resilient and that it has a continuity plan in place in the event of unforeseen circumstances disrupting its systems.
A spokesperson for Zopa said: “We’re on track and confident we will raise the required regulatory capital for our bank prior to the deadline, and we continue to work collaboratively with the Financial Conduct Authority and Prudential Regulation Authority towards lifting our restrictions.”
Zopa’s attempts to court investors come at a turbulent time for the P2P lending sector. The share price of Funding Circle, the UK’s largest platform, has collapsed to a quarter of what it was worth at the time of the company’s £1.5bn float in September 2018.
Smaller platforms, such as the business lender Growth Street, have been forced to cut jobs, while others, notably the property specialist Lendy, have closed down altogether.
Under Bank of England rules, financial firms must hold sufficient capital in order to be approved by its Prudential Regulation Authority. This requirement is based on the risks of the business, as judged by regulators.
According to a report produced by the Bank of England’s new bank start-up unit in 2018, if banks are unable to complete the licence with restrictions ‘within 12 months, or to the required standard, we may take steps to remove your authorisation or you may decide to apply to cancel your authorisation.
Currently Zopa’s interim licence limits the bank-in-training to £50,000 worth of customer deposits. If it does secure the more than £100million it needs by 3 December, it can offer a full range of savings accounts, though it intends to start with fixed-rate deals, with customer deposits of up to £85,000 protected by the UK Financial Services Compensation Scheme.
Original source: https://www.fnlondon.com/articles/p2p-lender-zopa-in-race-against-time-to-raise-at-least-100m-20191111
Leave a Reply