He once hoped to make banks a thing of the past by taking them out of the equation, but now Zopa is shutting down his peer-to-peer (P2P) lending arm after 16 years – so she can focus on her business. role of bank. .
The company has reached out to its 60,000 existing P2P investors to let them know it will give them back their money, leaving them to find a new home for their money at a time of very low savings rates.
P2P platforms bypass banks by connecting savers looking for a better return with individuals or small businesses looking for loans.
Until recently, billions of pounds were tied to Zopa and its competitors. However, the coronavirus crisis and the increased scrutiny of regulators such as the Financial Conduct Authority – which called P2P “”high risk investmentâ- caused enormous upheavals for the industry and led some players to leave the market.
When it launched in 2005, Zopa (meaning “area of ââpossible agreement”) was hailed as a radical online financial “exchange” that allows millions of ordinary people to borrow and lend each other money. His aim was to leave âfaceless businessesâ aside, saying they could offer consumers better interest rates than they could get from banks.
But in recent years, with some of the P2P industry shining after the collapse of some smaller players, Zopa has adapted his business model to embrace what he initially opposed. It obtained a full UK banking license in June 2020 and now offers products such as credit cards, personal loans, fixed rate savings accounts and car finance.
Zopa is closing the P2P portion of the business with immediate effect and will purchase its investors’ loans at their current face value, without any of the fees they would normally have incurred for a loan sale. This means that they will get back the money they invested on the site, as well as the interest that borrowers have paid up to the date of the sale. Everyone should get their money back by January 31, 2022.
All loans are purchased at face value, including those that are currently in arrears.
There will be no impact on borrowers as Zopa’s banking arm is already serving them.
The company told clients, âUnfortunately, in recent years, customer confidence in P2P investments has been damaged by a small number of companies whose approach has resulted in material losses for customers investing in these platforms. . Linked to this, changing regulations in the sector have made it difficult for it to grow and become commercially viable. “
For some investors, Zopa has been a key part of their portfolio. The company claims that since launching the average yield has been 5% and even during the pandemic it has been able to deliver an average of 3.9%. This compares to the 1.37% to 1.75% it was offering this week to those who put their money in its fixed rate savings accounts, which involves locking your money in for one to five years.
Those who want to stick with peer-to-peer will find that the options are limited. RateSetter, formerly the UK’s largest P2P site, shut down the investment side of its business in April, while the other former big player, Funding Circle, is now focusing on lending to small businesses.
However, there are still a number of platforms open to business. One of the best-known players is Lending Works, which said this week that people could get projected returns of up to 4.5%. Some P2P sites – in many cases, which most people haven’t heard of – offer up to 12%. These include the P2P Blend home loan platform.