Financial services firm Zopa has announced the closure of its investor accounts as it officially pulls out of the P2P (peer-to-peer) lending market. The decision was based on a ‘lack of customer trust in P2P investments’ as well as cost concerns.
Zopa - which gained a full baking licence last year - said it intends to focus instead on the other branches of its business, including savings accounts, credit cards as well as energy and broadband switching services.
In this article, we explain what P2P lending is, why Zopa has decided to withdraw its P2P loans, and how you can get your money back if you are affected by the changes.
What is P2P lending?
P2P lending is a system wherein individuals or businesses are able to get a loan directly from another person without using a bank or financial institution as the middle-man. The lender receives interest and gets their money back once the loan is repaid. However, despite its appeal, P2P lending is considered much riskier than traditional loaning as it is not covered by the Financial Services Compensation Scheme (FSCS). This means that any money compromised or lost in the process of P2P lending is not guaranteed to be paid back.
Why is Zopa no longer offering P2P loans?
Zopa was an early pioneer in the P2P sector, having offered the loans since 2005, but the industry has been hit by a number of setbacks in recent years.
A lack of consumer trust, marred by what Zopa has blamed on ‘a small number of businesses whose approach led to material losses for retail investors’, has chipped away at demand. Evolving regulations have also reportedly raised the operational costs of running a P2P business. In addition, the pandemic has caused a sharp increase in loan defaults, with investors struggling to break even.
News of Zopa closing its investment accounts is perhaps not the biggest surprise, especially after peer-to-peer lender Ratesetter was forced to shut all of its investor accounts in April this year.
What does this mean for you?
The impact of the changes at Zopa depends on which type of account you hold with them.
If you have a Zopa investor account (including ISAs):
All Zopa investor accounts, including Stocks & Shares ISAs, closed on 7 December 2021. However, you will not be able to access the funds in your account until Zopa has purchased the loans and repaid them back to you. You will continue to earn interest until the point at which your loan is sold.
The process will be completed by 31 January 2022. All individuals with a Zopa investor account will receive the full value of their invested balances in their Zopa holding accounts by this date. You will not earn interest on your funds once they are in your holding account.
You should receive a confirmation email after each loan or portion of loans is successfully sold. Once the process is complete, you have the option to withdraw your funds immediately. Alternatively, if you are an ISA customer, you can choose a new ISA provider and transfer your balance across. Take a look at our list of the 6 best Stocks and Shares ISAs to help you decide.
If you do not have a Zopa investor account:
If you are a Zopa customer but do not have an investor account with them, you will not see any changes and can continue using Zopa services as usual.