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British lender Zopa has raised £140m from US investor IAG Capital in a last-minute effort to salvage its bid to secure a full banking licence.
Zopa was a pioneer of peer-to-peer lending — where borrowers are connected with retail investors who fund their loans — when it was founded in 2005, but it has recently tried to transition toward more traditional sources of funding.
It received a provisional banking licence last year, but needed to raise extra capital to assure regulators it was stable enough to operate as a full bank.
Jaidev Janardana, Zopa chief executive, said: “This new funding means we have concluded the fundraising phase of our bank mobilisation. Definitive agreements to provide the funding have been finalised and are subject to final approvals including regulatory change of control.
“We continue to hold our bank licence with restrictions and are working closely with the regulators to gain our full licence. We are excited that once approved, Zopa will be able to launch its bank alongside its peer-to-peer business and offer a broader set of products to our customers.”
The fundraising was announced hours before Zopa’s provisional licence was due to expire. The investment is expected to give IAG, which was already a minority investor in Zopa, majority control of the company.
The prospect of a deal was first reported by Sky News over the weekend.
Zopa’s pivot away from peer-to-peer lending highlights cooling attitudes toward a sector which was once feted as a major disruptive force for UK banking. Start-ups like Zopa and Funding Circle promised to lend at better rates than major banks which had pulled out of many areas of lending after the financial crisis, while investors were offered better returns than those on offer through traditional savings accounts.
However, the sector has been rocked by a series of scandals this year and been targeted in a regulatory crackdown after the Financial Conduct Authority found that many investors did not understand the risks involved.
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