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Peer-to-peer lending company Zopa expects to launch as a bank later this year when UK financial services regulators lift the restrictions on its current banking licence.
The company decided to build the tech platforms for its banking products in-house because of its extensive internal tech talent with experience in building a peer-to-peer lending platform.
Zopa had originally intended to launch a UK bank in November 2016 when it applied for a banking licence. It received a UK banking licence, with restrictions, in December 2018 and now hopes to launch a digital bank to run alongside its current business before the end of this year.
Didier Baclin, chief innovation officer at Zopa, who was previously an Amazon employee, is driving the tech project underpinning the bank.
Baclin, who originally joined Zopa as chief data scientist, said the company is already testing its banking products with its own staff and expects regulators to lift the licence restrictions later this year, so it can go to market. Its initial products will include a savings account and credit cards.
Zopa will continue to focus just on the UK, said Baclin. “There is still a lot of room to grow in the UK, especially with new products,” he added. “If you look at savings and credit cards, they are huge markets.
“We already have hundreds of thousands of borrowers with us and there are millions of people applying for loans on a yearly basis. We have a good brand within the market, but we want to deliver more through technology in the future..”
Zopa has about 500 staff, with around 100 working directly with technology, such as software developers and data scientists. About one-third of its employees work at least partly with technology, said Baclin.
Zopa says it wants to create a bank that will suit people at different stages in their lives. Baclin said the ethos is to make things easier and reduce operating costs through technology and pass on the savings as better products, such as savings accounts with higher rates.
Read more about Zopa
- Zopa, the company that pioneered the peer-to-peer lending sector with its tech platform, looks to add more disruption to the retail banking market.
- Peer-to-peer lending accounted for more than £1.2bn of UK loans in 2014, with confidence growing in IT-enabled access to credit.
- UK adults are increasingly opening accounts with new banks, Zopa research finds.
“In the past, people spent hours on the phone applying for finance products, but we want customers to be able to land on the website and then, five minutes later, either enjoying their loan or earning high interest in a savings account,” he said.
When Zopa gained its banking licence last year, CEO Jaidev Janardana said the licence was the start of its retail banking strategy. “When we pioneered the peer-to-peer lending model globally, we did so by listening to customers and creating a better product for them,” he said. “We will bring the same focus to our banking products – drawing on tech innovation, our values of fairness and transparency, and better customer service to help even more people to feel good about money.”
While ease of use is a vital component of Zopa’s offer, it also plans to achieve differentiation in products. This is not easy, because many challenger banks find themselves as a second bank for most customers, who are not ready to move to them fully. The banks’ additional digital services are attractive, but most people still use them as a payment card service.
Zopa has no plans to launch a current account because it doesn’t currently see how it can offer more than is already on the market.
Baclin said: “We said initially that we would not launch a current account because we want to offer products where we can deliver strong value beyond what we see in the market.”
He added that the success of Zopa’s peer-to-peer lending business, which has lent over £4bn, is evidence that it can differentiate. “I wouldn’t describe a loan as a very differentiated product, but we managed to do it with a blend of really good rates, products that people can get in a few minutes, and good customer service,” he said.
Do the work in-house
When it comes to building the technology that runs the bank, Zopa looked at the software suppliers and fintechs before opting to do the work in-house, said Baclin.
“We did not find great offerings out there,” he said. “On the one hand you had these big legacy systems, and on the other you had new providers that did not necessarily cater for the customers we want.”
Logic drove Zopa to build its own platform, said Baclin. “We had good experience in creating our own platform for our peer-to-peer loans business and knew how to develop technology in a heavily regulated market, so it was the logical next step.”
All Zopa’s new products are cloud-based, and it is working in partnership with Amazon Web Services (AWS). “All our services have to be delivered with the same efficiency, even when there are high volumes in demand,” said Baclin. “AWS ensures that the latency for customers remains the same.”
A recent survey of 2,000 people by Zopa revealed an appetite for new banks in the UK. The survey showed that the number of UK adults with two or more current accounts has increased by 36% in the past four years, with 17 million adults now using multiple current accounts.