Zopa to launch a bank

November 16th, 2016

The world's first peer-to-peer lending platform - Zopa - is planning on launching a bank in 2018.  Zopa has come full circle, having started in 2005 as an alternative to banks, and it is now launching its own bank, in addition to its current peer-to-peer platform.  The Zopa bank will offer FSCS protected deposit accounts and overdraft "alternatives" to borrowers.

Jaidev Janardana, CEO of Zopa said:

“We launched in 2005 to create a richer life for everyone by making money simple and fair. We have lent over £1.8bn and inspired a £100bn global industry. We have built a profitable, scalable and viable business. Yet we’ve only just begun. We want to launch a next generation bank to drive greater choice for borrowers, savers and investors, which is good for consumers and good for the economy”

“We are uniquely placed to re-define customer expectations of what a bank should deliver in the 21st century. Over the last 11 years we have delivered great value to borrowers and investors whilst prudently managing credit risk. Combining our pioneering data and tech-led culture with an obsession with fairness and customer experience, we are best placed to shape the future of personal finance in the UK.”

Below is a copy of the email sent to lenders:

I wanted to write to you, on behalf of everyone at Zopa, to share some important news.

We launched Zopa in 2005 to create a richer life for everyone by making money simple and fair. Since then, we have lent over £1.8bn, inspired a £100bn global industry and helped our lenders earn over £75m of interest. We have built a profitable, scalable and viable business. Yet we’ve only just begun.

We want to offer consumers even more choice, which is why, subject to regulatory approval, we are planning to launch a next generation bank to complement our existing peer-to-peer products.

We will continue to offer our peer-to-peer investment products.

Launching a bank, to sit alongside our existing peer-to-peer business, will allow us to create new and innovative savings and borrowing products. At launch, Zopa will offer FSCS protected deposit accounts to savers and overdraft alternatives to borrowers.

As an existing Zopa customer, we will give you the first opportunity to try out our new products. We will also actively welcome your input as we shape them.

The application process should take about 15-24 months, and we will keep you updated when we have news to share.

We believe we are uniquely placed to re-define what you should be able to expect from personal finance products in the 21st century.

Over the last 11 years, we have built an innovative, profitable and well-managed business. We have proven that we can deliver great value to borrowers and investors whilst prudently managing credit risk.

We know how to originate quality loans seamlessly online and meet our risk expectations. No new bank has that track record, and no incumbent bank has the digital expertise that we do.

We put our customers at the heart of all our decisions and obsess over how we can use technology to offer you simple, smart choices. We are looking forward to offering more products to even more people in the UK.

For now, thank you for investing through Zopa. I look forward to sharing this exciting journey towards the next generation banking we all deserve.

Zopa have also published a press release.

LendingCrowd receives full FCA authorisation

November 4th, 2016

LendingCrowd has become the peer-to-peer business lending platform to receive full FCA authorisation moving on from interim permission.

Here is the email sent to lenders today:

Hot on the heels of our recent funding partnership with Scottish Investment Bank we are delighted to announce that we have moved from interim to full FCA authorisation from 1st November 2016. We are the first peer-to-peer business lender to move from interim to full authorisation status and the second in the industry to do so.

This means that LendingCrowd has demonstrated that it meets the rigorous statutory requirements of the FCA.

FCA authorisation matters for a number of reasons and indicates that we:

  • have been subjected to detailed due diligence
  • are committed to treating customers fairly
  • have robust operational processes in place.

Full authorisation also paves the way for the launch of our Innovative Finance ISA product offering investors peer-to-peer investment opportunities within a tax-free wrapper.

Our CEO Stuart Lunn commented: “Peer-to-peer investing is growing in popularity every day. We are supportive of industry regulation and we’re extremely pleased that LendingCrowd has reached this milestone. It unquestionably adds credibility and trust in a relatively young marketplace in which our aim is to be a major player. It also means that we can look to launching our ISA product both direct to investors and through investment platforms, several of which we are already engaged with.”

Insight into FCA requirements

October 27th, 2016

Yesterday I received an email from a peer-to-peer lending platform concerning some changes to their lending model.  The platform states that these changes have been requested by the FCA in order to make their lending model compliant with the relevant legislation under Article 36H of the Regulated Activities Order 2014.

Some of the notable points are below:

  • Any security for loans will be taken through a trustee company who will hold security on trust for lenders.
  • In the event of a default by a borrower the platform will enforce any security, although lenders will no longer vote on such matters.
  • The platform will issue a Loan Facility Agreement to the borrower.  This agreement is written so that when the auction fills up the loan is novated (transferred) to the individual lenders for their loan parts.

The platform stated that their legal team had advised that it was against Article 36H to give lenders voting rights when the borrower has defaulted.  A few peer-to-peer platforms currently give lenders a vote, weighted on their loan amount, for further action when a borrower has defaulted.  Could this change disenfranchise more hands-on lenders?

A number of platforms, such as Wellesley & Co, fund the loans directly, then sell loan parts to lenders through their peer-to-peer platform, rather than the lenders funding the loan directly.  It will be interesting to see how these platforms adapt to the FCA requirements, or if they will be treated as a collective investment scheme.

Funding Empire suspends loans until FCA approval

October 27th, 2016
Funding Empire

Funding Empire has advised lenders that they will not be issuing any new loans until they have received full authorisation from the FCA which is expected in January 2017. Funding Empire have also been sold back to the founding team, who should a majority stake holding to Paratus AMC Limited in July 2015.

Should lenders be concerned with either development? At this stage lenders should not overly be concerned. It is likely there is a question mark over FCA authorisation otherwise the platform would not have suspended lending back in September, however companies are required to provision for running down the business in a controlled manner. The takeover of Funding Empire when new loans are not being issued possibly indicates that Paratus AMC Limited did not see a way forward to realise Funding Empire's value in its current form.

Here is the email sent to lenders yesterday evening:

Further to our last communication on 22/09/16, this is to let you know that we have now completed a management buyout, and that the founding team have acquired all shares held by Paratus AMC Limited and are once again the sole owners of Tally Marketplace Lending Limited (Tally), the company which operates the ‘Funding Empire’ platform.

Please rest assured that this will not at all impact the service you receive as a lender on the ‘Funding Empire’ platform and we will continue to service your current loans as we have always done. However, we will not be issuing any new loans until we know the outcome of our FCA application which is expected in January 2017. This is an internal decision that was made by the management team.

If you have any questions about this, please email me and I will endeavour to reply to your questions where possible.

Rebuildingsociety marketplace changes

October 24th, 2016

Rebuildingsociety.com are offering borrowers a 5% discount in return for additional security.

We've been working hard to bring you good quality borrowing applications for you to consider. Currently businesses that are eligible to borrow through rebuildingsociety.com, must have at least two years history, an average turnover of £50,000 a quarter and offer at least a personal guarantee as security. The average final rate paid by borrowers on our loan book is over 20% APR*, this rate is paid usually regardless of the security offered in support of the loan.

We've listened and as lenders you want better security and borrowers tell us they want lower rates.  So we're excited to launch 'loan discounts for security' e.g. A loan with a 1st charge over a property with a great LTV will receive a discount of up to 5% on their starting auction rate.

This incentivises borrowers to  put up any security they may have and hopefully gives lenders a better choice of loans.

 These marketplace changes are explained in detail on the blog.

The borrower can offer a wide variety of security to support their loan. We’ve assigned a nominal value to the different types of security, making some security ‘more valuable’ than others. For example a 1st charge on a property will be deemed a more valuable form of security than a company debenture, and as such they will be rewarded with a lower starting interest rate.

The more security added, the more the starting rate will be reduced* as the security added works in a cumulative way linked to the loan to value ratio.

The starting maximum rate will never be modified lower than 5% of the standard maximum rates, which are currently as follows:

  • A+ = Max rate 11%
  • A= Max rate 14%
  • B= Max rate 17%
  • C= Max rate 20%

Therefore a C rated loan will never have a maximum starting rate of less than 15%.

The security we can accept from a borrower is ranked in priority below.

  • 1st Charge Commercial Property
  • 1st Charge Non Residential Property
  • 2nd Charge Commercial Property
  • 2nd Charge Non Residential Property
  • 1st Charge Residential Property
  • Fixed Asset Debenture
  • 2nd Charge Residential Property
  • All Assets Fixed and Floating Debenture
  • Corporate Guarantee
  • Personal Guarantee Insurance

Therefore, depending on the LTV on the security, a 1st legal charge taken on a commercial property in support of a loan will be ranked higher than a loan with an All Assets Debenture and may be achieve a lower maximum loan rate. Similarly, based on the above a loan secured on a 1st charge non residential property with an exceptional LTV will not achieve a better rate than a loan secured on a 1st commercial charge that also has an exceptional LTV, unless the former is accompanied by additional security.