Zopa raises $41.2 million for challenger bank launch

Neil Ainger, fintech correspondent at
Jaidev Janardana, CEO of peer-to-peer lender Zopa.

Online peer-to-peer (P2P) lender Zopa has raised £32 million ($41.2 million) from investors in readiness for the launch of its own challenger bank.

Zopa hopes to win business from established branch-based incumbent banks in the U.K. by offering a digital technology-focused bank that will operate online and on mobile later this year.

The capital for the U.K. crowdfunding and financial technology (fintech) pioneer comes from Wadhawan Global Capital (WGC), an Indian financial services firm, and Northzone. The latter venture capital (VC) fund has backed Spotify, iZettle and MarketInvoice in the past.

Kapil Wadhawan, Chairman of WGC, will join the Zopa Board as a non-executive director following the investment.

Last November, Zopa unveiled its plan to launch a next generation digital bank that takes deposits from savers and offers a range of P2P investment products, plus personal loans, car finance and credit cards. The capital fundraising will allow it to do this.

It received regulatory approval last month from the U.K. Financial Conduct Authority (FCA) to offer the Innovative Finance Individual Savings Account (IF ISA) investment to savers, strengthening its investment portfolio options.

The crowdfunder says it will apply for a full U.K. bank license later this year and use the new money to help support the build-out of the necessary technology infrastructure and product range.

The new bank account and products will be part of the U.K. Financial Services Compensation Scheme (FSCS) when launched. This means savings and investments will be protected and extra regulation is necessary because Zopa will then be a deposit-taking institution.

Zopa was one of the first online P2P lenders in the U.K., launching in 2005. In January it surpassed the £2 billion mark in terms of the value of loans it has made, a first for a European crowdfunder, with £800 million coming in the past year alone.

In a statement, Jeppe Zink, a partner at the Northzone VC fund, said: "We believe Zopa is a blueprint of what the modern, technology-first bank will – and should – look like, based on transparency and customer service. Zopa is already a trailblazer in the market, and is in a strong position to build on this, with the launch of their new products."

Northzone announced a new $300m fund last year and said at the time it was eyeing U.K. fintech start-ups as an investment target.

The latest fundraising round brings Zopa's total capital raised so far since its establishment in 2005 as a disruptive force in the U.K. leading market to £87m. Early stage investors include Arrowgrass, Bessemer Venture Partners and Augmentum Capital.

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