Zopa nabs deadline day funding to meet requirements for its banking license

• This story was delivered to Business Insider Intelligence Fintech Pro subscribers earlier this morning.
• To get this story plus others to your inbox each day, hours before they’re published on Business Insider, click here.

Zopa, the UK-based peer-to-peer (P2P) lending fintech, has raised £140 million ($183 million) from IAG Capital, reports the Financial Times. IAG, which was already a minority investor in Zopa, is expected to take majority control of the startup following the investment.

Business Insider Intelligence

The funding, which takes Zopa’s total raise to over $460 million, has come at a cost for the company’s valuation and its existing investors, though. Results from Augmentum Fintech — an early investor in Zopa — released on the same day as the funding show that it has written down the value of its shares in Zopa by almost 50% in the last six months to £11.7 million ($15.3 million) from £22 million ($28.9 million) at the end of March, per the FT, suggesting the UK’s P2P lending market is beginning to creak in earnest.

The capital injection is a vital lifeline for Zopa in its efforts to expand beyond its core P2P business. Although a pioneer in the UK’s P2P space, the 13-year-old player has sought to broaden its business beyond its initial focus by moving into banking to offer products including fixed-term savings accounts and credit cards.

The startup has been somewhat successful in this effort: It received a conditional banking license in 2018, making it the first UK P2P lender to do so. However, as part of the license, it was required to raise extra capital to alleviate regulators’ fears it wouldn’t be stable enough to operate as a full bank. The new raise represents a last-minute lifeline for the fintech’s banking ambitions because it came on the same day Zopa’s restricted banking license expired. This means it can begin the process of working with regulators to gain a full license and launching its bank alongside its P2P business.

While ultimately the news is good for Zopa, the last-gasp nature of its raise is evidence of the growing challenge for the UK’s P2P space. Augmentum says that Zopa’s raise was “challenging due to the nature of the investor pool the company was targeting” — that pool being the P2P space, cited by the FT. And this makes sense given the struggles UK players in the segment have faced: Funding Circle, which has seen its share price tumble down by around 80% since its public debut in 2018, has cut its growth forecast for 2019 by 50%, for instance.

Worse, a number of players have gone into administration in recent years, including Lendy, Funding Secure, and Collateral. These struggles are likely to be exacerbated by rules introduced earlier this year by the UK financial regulator that limit the amount of money retail consumers can invest via these platforms. For Zopa, it’s vital going forward that it builds out its banking business rapidly and diversifies away from its P2P business if it wants to insulate itself properly from the challenges facing the industry.

Want to read more stories like this one? Here’s how to get access:

1. Sign up for Fintech Pro, Business Insider Intelligence’s expert product suite tailored for today’s (and tomorrow’s) decision-makers in the financial services industry, delivered to your inbox 6x a week. >> Get Started
2. Join thousands of top companies worldwide who trust Business Insider Intelligence for their competitive research needs. >> Inquire About Our Enterprise Memberships
3. Explore related topics in more depth. >> Visit Our Report Store
4. Current subscribers can log in to read the briefing here.