Credit where it’s due

Buy now, pay later and achieve profitability. This could be UK neo Zopa Bank’s story in 2023.

The former peer-to-peer finance pioneer, which morphed into a savings and lending bank just three years ago, believes that its BNPL offer, bolstered by the acquisition of fellow British lendtech DivideBuy in January, will boost revenues by at least 20 per cent as consumers battle a cost-of-living crisis.

But, just as it blazed a trail when it launched the world’s first P2P lending platform back in 2005, this new incarnation of Zopa will be doing things slightly differently – this time in the POS instalment loans space.

“BNPL exploded in the pandemic as people looked to push out costs over a longer period for safety and security,” says chief strategy officer Merve Ferrero.

“Now, Juniper Research estimates the economic downturn will drive a 157 per cent increase in BNPL use and that BNPL users will surpass 900 million by 2027. We have to make sure this growth is sustainable and responsible.”

To that end, last year Zopa Bank set out a vision for what it calls BNPL 2.0, introducing credit checks and data sharing in an as-yet-largely-unregulated lending space to stop consumers burying themselves in debt.

Ferrero says the acquisition of DivideBuy, with its strong product offer and modern technology stack, was a clear fit in achieving a digitally native suite of responsible BNPL products, which puts customer protection first.

Staffordshire-based DivideBuy already had 400 participating merchants – many in the soft furnishings and beds space. Shoppers can spread the cost of higher-value items matches Zopa Bank’s existing strategy to offer BNPL loans of between £250 and £30,000.

“Unlike most BNPL offerings, we are focussing on big-ticket items and our customer communications are designed to be fair and not misleading,” says Ferrero.

“While with BNPL shoppers are not usually charged interest on their purchases, they are still at risk of overextending themselves with debt. And they are not entitled to forbearance or compensation if things go wrong because providers are not yet regulated in the UK.

“It will take some time before the Financial Conduct Authority starts overseeing the sector, so, until then, we must ensure customers are treated fairly and understand the impact of BNPL on their financial positions. BNPL 2.0 is an evolution of today’s model. It gives consumers access to affordable credit but with clear protections in place.” purchases over a two to 12-month period, interest free, and it claims to improve checkout conversion rates by around 40 per cent. Its focus on

Zopa Bank’s BNPL product draws heavily on its experience in data analytics and risk assessment programmes, built by teams in-house teams in London and Barcelona. Just as with its other lending decisions, the system runs credit checks and affordability assessments before giving customers an automated decision on an application for BNPL in seconds.

Crucially, that loan decision is also shared with credit rating agencies so other lenders have a fuller picture of the consumer’s debt position. And, to support the borrower, Zopa Bank provides proprietary online tools so they can better manage those financial commitments.

With a product portfolio that features personal loans, savings accounts, car loans and credit cards, Ferrero stresses the bank does not operate in the sub-prime or pay-day loan space, perhaps because, as its CEO said in an interview with McKinsey last year: “Being a bank born after COVID hit, we never had the luxury of not being cautious.”

Ferrero says the bank’s customers tend to be resilient but, faced with the current cost-of-living squeeze, she splits them into two groups.

“We have customers who came out of the pandemic with higher savings and a good credit score but are feeling the pinch with inflation and less disposable income. They will likely try to protect their savings and limit their credit exposure, leading to less volume in discretionary spending.

“The other group are customers who either lost income or are now in low-pay jobs and did not manage to save through the pandemic, who have been left without a financial buffer.

“They will likely be the ones most immediately impacted by double-digit inflation and may rely on their credit cards to cover day-to-day payments and balance their books. Against this backdrop, it is important for consumers to be able to access sustainable and affordable credit.”

Customer Data Is King

Zopa Bank has used models based on machine learning since 2015. Credit decision-making is fast, which ensures a slick experience for customers borrowing directly or via a merchant’s point-of-sale terminal or website. While it doesn’t offer current accounts, it uses current account turnover data from other banks to verify income, as well as harnessing intelligence gleaned from data acquired via open banking.

A recent innovation created to account for increased risk due to the cost-of-living crisis has been harnessing data taken via an API that allows the bank to assess the size of a credit applicant’s home and, therefore, the impact of soaring energy bills.

Also, in February, Zopa announced it had partnered with Experian so the credit rating agency’s Boost data could be used in the bank’s credit card decisioning process.

Experian Boost allows consumers to improve their credit score by considering transactional data – such as current account credits and debits, regular payments to digital service providers, plus savings accounts and utility bill payment data.

The Boost data is considered, regardless of whether customers apply for a Zopa Bank credit card directly, or via Experian or a third party, and it can result in lower APRs being offered.

Ferrero says: “We continuously adjust our credit risk, based on the macroeconomic half of customers keeping savings with the bank when a fixed-term product came to an end. He told McKinsey: “If I look at my loans, about half of our customers will take a loan again with us within five or six years of the first one. And when they do that, they come directly back to us – we are not spending marketing money on that.”

Best In Class

A unicorn within 18 months of transitioning to a bank, to date the neo has attracted £3billion in deposits and issued around 400,000 cards. Its savings app is rated one of the best on the market and the bank is currently offering one of, if not the best easy-access savings rate in the country.

Like many others, it’s talked about an early IPO, but following a top-up £75million fundraise in February, Ferrero says ‘we will not be rushed to make hasty decisions and will carefully evaluate the investment climate when markets reopen’.

Consumer protection: Sustainability of credit is as important as accessibility conditions, pulling back on loan origination and credit risk when needed.”

Notwithstanding the current pressures on consumers, taking a cautious approach has paid off: a low level of loan defaults compared to rivals during 2020 and 2021 accelerated the company’s journey toward profitability. It nudged in and out of positive monthly accounts last year.

Another key move was the decision not to offer a current account after witnessing rivals attract large numbers of customers who then only maintained balances averaging around £500. Even with the potential to cross-sell other products to current account holders, Zopa deemed the economics did not stack up. Its decision was validated when its CEO reported the bank enjoyed strong repeat behaviour with

Meanwhile, the bank is doubling down on efforts to create more of those financially responsible customers it cherishes. It launched the 2025 Fintech Pledge alongside credit rating agency ClearScore in September, which aims to drive 10 million actions by 2025 that build the financial resilience of consumers. Thirty-four financial institutions have since joined to help people take action to boost their savings, improve credit scores, consolidate debt and lower their bills.

It also recently announced a partnership with The Money Charity to create an online course and a series of financial education workshops to reach consumers who may need it most, and these will launch in the coming months.”

Running until December 2025, Zopa Bank and ClearScore will fund the first year of The Money Charity’s work, which will include a free online course, plus more targeted personal finance help for community groups and individuals.

By then, the UK’s Consumer Duty law, which demands financial services providers ‘act to deliver good outcomes for retail customers’ as well as, potentially, a legislative framework for BNPL, will be in place. Ferrero welcomes both of those.

“Regulation will undoubtedly help the BNPL space,” she says, “by providing necessary safeguards for customers and creating a level playing field for responsible companies to grow.”

Seen as a reliable commodity for millennia, many increasingly believe gold has untapped potential in the modern payments sector. Jason Cozens, the founder of the UK-based gold-backed savings and payment app Glint, even goes as far as to say it’s right up there with Bitcoin as a genuine ‘alternative to banking, payments, and money itself’.

”Bitcoin is a friend of Glint,” he declares. “We are both dealing with the same problems in the monetary system. Personally, I think people should have some Bitcoin and some gold."

An oversubscribed first crowdfunding campaign that reached £3.1million in November 2022 and a 100 per cent increase in registered Glint users last year to 190,000 – leading to double the amount of gold (two tonnes, or $110-120million-worth at the time) that it had stored in a Brink’s vault in Switzerland – suggests that many are already keen to get their hands on it.

The self-styled ‘goldfi’ (as opposed to altfi) challenger has come a long way since we last spoke with Cozens, soon after the app’s launch, in 2020. At the time, pandemic-panicked investors were fuelling a gold rush, the flight to bullion-backed assets a typical response to economic uncertainty. From a £1,517.61/ounce high in August of that year, gold has continued a staggered rise – as it has done for a few thousand years. Neither Bitcoin nor gold, of course, is immune to price swings. But, as Cozens points out, they are at least immune from the whim of government monetary policy. An ounce of gold would have bought a Roman senator a very nice toga; an ounce today would get you’re average MP a long way on Savile Row.

Bitcoin, meanwhile, since its launch in 2010 has more than held its value, despite the well-publicised highs and lows. If you'd bought $1,000 of Bitcoin in 2010 and done nothing with it, it would be worth more than $350million today.

Compared to the fiat currencies whose value evaporates in our pockets as a result of inflation, gold holds up pretty well. Its value has grown by more than 500 per cent over the last 50 years, while the dollar and the pound have lost 85 per cent of theirs.

Bitcoin hasn’t yet lived up to its promise to be a democratising influence on finance, though: it’s been estimated that 95 per cent of its value is in the hands of just two per cent of investors. Gold's ownership, on the other hand, is much better distributed. Even central banks only own 17 per cent of it.

Glint wants to extend that ownership even further, to ’100s of millions of customers worldwide’ (and, just as an aside, the platform doesn't need the energy requirements of a large country to make that happen, as crypto mining does).

However, like crypto, it must use the very financial system it seeks to disrupt to reach the mainstream as a payment utility. As one Bloomberg article put it: “Many digital-asset companies need traditional finance firms to help provide customers with a reliable on-and-off ramp between their platforms and the world of hard currency.” Goldfi is no different in that regard.

Glint is a market leader in this niche, providing a payment app and a Mastercard to customers who can use their gold deposits to make payments anywhere in the world. They can invest in as little as a gram in a gold bar that’s co-owned with other Glint users, or amass their own private horde of reserved gold. The app allows them to transact in USD, Euro or GB pounds at will, so they can choose fiat currencies or gold at any given moment, whichever is the most advantageous at the time and so long as they hold sufficient in their account.

If achieving Glint’s vision means leveraging mechanisms inside the existing banking system, Cozens is happy to play by its rules. He welcomes, for instance, the introduction of the ISO 20022 standard across the payments industry. “The ability to be able to share rich information, through the standard, between different financial institutions is going to allow us to do better KYC and combat money laundering,” he says.

Cozens continues: “Our back-end is gradually becoming a platform with APIs. We’re already talking to some very big financial institutions about integrating our product with theirs, so they can offer the Glint experience to their customers, and

BULLY FOR BULLION!

I’d like to think that could expand around the world.” Ultimately, Cozens says, Glint wants to ‘build a global gold-based financial services ecosystem, making gold payments across the planet’.

It recently added a new portal for wealth managers and its crowd investor pitch last year indicated plans to add subscription tiers, business accounts and additional currencies. Cozens teases a further have’, says Cozens, whereas ‘goldfi’ is a true disruptor, but with a pedigree almost as old as civilisation itself – so even traditional investors see merit in it. development, too; an invite-only ‘X Account’, that comes with its own card. Meanwhile, the app has had a Version 3 upgrade, which went live in April.

Well before the crowdfund, Glint had brought in $38million through a slate of institutional and accredited investors, including Sibanye-Stillwater’s BioCube Innovation Fund, Sprott Asset Management, the Tokyo Commodity Exchange, and Craig Dewar, the co-founder of GPS that powers neo banks like Revolut and Starling.

While they might not all share Cozens’ view that gold is ‘the future of money’ they clearly believe it has a big part to play in it.

Democratising Money

Clearly, something is piquing interest in products like Glint, beyond the wider hype in investment apps. Perhaps it’s because a lot of fintech is about making ‘iterative improvements to [products] we already

An architect by training, Cozens was motivated to found Glint because he was tired of seeing people without significant wealth or assets forced to rely on financial systems that disadvantaged them.

“Some countries have incompetent central banks, where inflation is over 80 per cent. Even in developed countries now, base inflation is at around 10-12 per cent,” he says. “People need something more reliable. And there’s nothing more proven than gold. With Glint’s technology, it is a viable alternative that can make a difference in their lives.”