Jaidev Janardana, CEO of peer-to-peer lender Zopa.
LONDON – UK online loan start-up Zopa has raised $ 300 million in a funding round led by SoftBank, helping to increase investment in Europe's booming financial technology sector.
According to a source familiar with the deal, the company is now valued at $ 1 billion following the new cash injection, making it the latest European fintech company to achieve unicorn status. The source preferred to remain anonymous as the information was not made public.
Founded in 2005, Zopa started out as a peer-to-peer lender connecting investors with borrowers through a single online platform. The company has since shifted its focus to becoming a full-fledged bank after securing a banking license in the UK, but continues to operate its peer-to-peer marketplace.
Zopa launched a credit card and savings account last year in hopes of gaining a bigger share of the UK retail market and taking on giants like Barclays and HSBC. It has raised £ 700 million ($ 961 million) in deposits to date and has attracted 150,000 credit card customers.
"We are expanding our balance sheet quickly," Jaidev Janardana, CEO of Zopa, told CNBC. "With this capital we can accelerate this growth path."
Zopa is one of several startups that want to revolutionize the banking sector. In the last ten years so-called neobanks such as Monzo, Revolut and Starling have emerged, which attract millions of customers with toll-free checking accounts and a smooth online interface. But so far they have found it difficult to make a profit.
Starling was in the black for the first time last year and says it is well on its way to making its first profit of the year. Revolut posted losses of £ 167.8 million ($ 230.6 million) in 2020 while Monzo lost £ 130 million. However, Revolut managed to break even towards the end of last year.
Zopa is "more sustainable" than its competitors, Janardana said, adding that the company is well on track to be profitable within 10 weeks. This, along with Zopa's use of artificial intelligence, was a key factor in SoftBank's investment, he added.
"(Softbank) share this belief that by using much more technology and AI, we can scale faster and compete with incumbents because we have both cost advantages and the advantage of being able to make precise decisions," said the CEO of Zopa .
Zopa said it had net operating income of £ 21.9 million in the first half of 2021, more than double the end of 2020. The company expects sales to more than double this year.
Janardana believes Zopa will eventually become one of the UK's "Big Four" lenders.
"Our view of the competition has not changed significantly – they remain the big old banks," he said.
Fintechs have raised huge sums of money this year as investors sought to capitalize on an acceleration in digital finances during the coronavirus pandemic. Klarna raised $ 1.6 billion in two funding rounds, while Revolut bagged $ 800 million. SoftBank is an investor in both companies.
Zopa said the last fundraising will be the last before a planned IPO. Janardana aims to go public by the fourth quarter of 2022. A stock market debut will not take place until Zopa has shown a "consistent track record," he said.
"Given the capital we have raised, this gives us the flexibility to leave at this time or a little later depending on market conditions," Janardana said, adding that the London market is a "natural place" for us to be should list.
Britain wants to attract more high-growth tech companies to its stock market after Brexit. Reforms proposed earlier this year would see London relax its rules on blank check companies and founder-friendly stock structures.
Together with SoftBank, Zopa's latest round of investments was supported by Abu Dhabi-based asset management company Chimera Capital and existing investors such as IAG Silverstripe, Davidson Kempner and Northzone.
Zopa is one of the few fintechs in the social lending sector that still operates a peer-to-peer marketplace. Domestic rival RateSetter closed its P2P business after a sale to UK lender Metro Bank, while US firm LendingClub did the same after acquiring a regulated bank.
When asked if Zopa could eventually pull down its P2P division, Janardana said the company continues to scrutinize the market.
"We'll see how the market develops," he said. "We learned a lot there in order to find the right clients to provide credit and to ensure our investors get a good return. And some of these things are very helpful for our future strategy."